Stablecoin News for the week ending Wednesday 16th November.

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Here is our pick of the 3 most important stablecoin stories during the week.

As FTX blows up stablecoins hang in there. 

This week while FTX burned down to the ground, thankfully stablecoins managed to stay for the most part stable.

With volumes of trades at unprecedented levels as customers rushed to the exists, 

USDT transactional activity jumped to a four-month-high.  Tether Global Chief Technology Officer Paolo Ardoino pointed out in a Thursday tweet that over 700 million USDT were redeemed for U.S. dollars in the past 24 hours. “No issues. We keep going,” he said.

Tether’s USDT Stablecoin Drops 3% Below $1 Peg

Meanwhile in CBDC land, the BIS discovers that convenience is not only good for customers but also for Central Banks.  Good to know.

“More and more central banks are transitioning from thinking about central bank digital currencies (CBDCs) in conceptual terms to considering a launch. Attention has shifted from high-level monetary policy and financial stability considerations to country-specific design and policy interactions.

Large banks have a competitive advantage that the introduction of a CBDC could amplify or reduce, depending on the design choices. A highly convenient CBDC produces sufficient competitive pressure in deposit markets to raise deposit rates for any given level of IOR and increases the responsiveness of deposit rates to IOR rate changes. Increasing payment convenience also has favourable effects on market composition by levelling the playing field. Paying interest on CBDC balances increases deposit rates but is arguably a less desirable policy since this action increases the inequality of market shares and can weaken the responsiveness of deposit rates to IOR rate changes. 

The conclusion is that payment convenience is a crucial aspect of CBDC design that may be more desirable than paying interest on CBDC balances.”

The case for convenience: how CBDC design choices impact monetary policy pass-through (bis.org)

However, just up the road from Basel in Zurich, The Swiss National Bank does not see any overall benefit from issuing a central bank digital currency (CBDC) to be used by the general public and used in day to day transactions, governing board member Andrea Maechler said on Tuesday.

“We believe the risks outweigh the benefits,” Maechler told a financial conference held in Frankfurt, saying a retail CBDC meant central banks taking on the risks carried by the private sector and increased the risk of bank runs.

There also needed to be a balance struck between safeguarding privacy and the potential misuse of retail CBDCs in criminal activity, Maechler said.

Swiss National Bank against issuing retail central bank digital currency | Reuters

So in summary, the Crypto Infrastructure, of which stablecoins are a central pillar, was given one hell of a stress test this last week, while Central Bankers continue to stare at their navels about the usefulness of customer convenience.

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Alan Scott is an expert in the FX market and has been working in the domain of stablecoins for many years.  

Twitter @Alan_SmartMoney

We have a self imposed constraint of 3 news stories per week because we serve busy senior Fintech leaders who just want succinct and important information.

For context on stablecoins please read this introductory interview with Alan “How stablecoins will change our world” and read articles tagged stablecoin in our archives.

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