Central banks consider backing stablecoins instead of launching CBDCs

Rick Steves

It seems that central bankers may welcome the idea of backing stablecoins as a shortcut for a Central Bank Digital Currency (CBDC). 

The Gillmore Centre Policy Forum heard at Warwick Business School (WBS London) had Antoine Martin, financial research advisor in the Financial Stability Policy Research Division of the Federal Reserve Bank of New York, speaking about the future of digital currencies and a new path for CBDCs: to support the development of safe stablecoins instead of producing their own digital currency.

“Stablecoins are much better payment instruments than Bitcoin and stabilize their value by being backed by assets denominated in a fiat currency. They commonly depend on commercial bank money to hold the reserve assets that back their coin representations and this is typically the US dollar.

Central bank liabilities could support the provision of stablecoins

“Stablecoins are very close cousins of Alipay and Tenpay’s digital payment platforms in China. Indeed, for every yuan in customer deposits, Alipay and Tenpay must hold a yuan in an account at the People’s Bank of China, making them functionally equivalent to stablecoins”, he continued. “And so in principle, central bank liabilities could support the provision of stablecoins, much like bank reserves for commercial bank money.”

“Instead of issuing a retail CBDC, central banks could support stablecoins by allowing them to be backed one-for-one with balances in a central bank account. They could also facilitate a bankruptcy remote legal structure to ensure that end-users are paid in full even if the issuer becomes bankrupt. Such stablecoins could be a close substitute for central bank digital money, while balances in a central bank account are risk free and could earn interest. Though stablecoin issuers should be subject to some oversight in exchange for access to a central bank account”, he added. “These stablecoins would be safer to end-users and thus more attractive than those backed with other assets. Rather than producing a competitor to digital currencies by producing a CBDC, central banks could be used as a tool by providers to enhance their payment service.

Supporting stablecoins is easier than managing a CBDC for retail use

Antoine Martin concluded by saying that “adapting our regulatory and legislative environment to support stablecoins is already a formidable task, but it is probably easier than managing a CBDC for retail use, especially as the private sector currently provides all retail digital means of payments on legacy technology.”

The event was held at Warwick Business School’s Gillmore Centre, established with a £3 million donation from Clive Gillmore, CEO of Mondrian, which invests in fintech innovation including AI, blockchain, mobile payments, cryptocurrencies and crowdfunding platforms.

Ram Gopal, Director of the Gillmore Centre for Financial Technology, said: “This is a fascinating idea and something that will need research. The topic of stablecoins and the idea of central banks bringing in their own digital currencies is something the Gillmore Centre is researching. Fintech and cryptocurrencies are evolving rapidly and it is vital the implications and impact of them is researched thoroughly so a robust ecosystem can be developed where consumers are protected and innovation is allowed to flourish.”

Read this next

Digital Assets

As SPAC bubble bursts, Circle terminates its $9 billion merger with Concord

USDC stablecoin issuer, Circle has terminated its planned $9 billion SPAC merger with publicly traded blank-check company Concord Acquisition Corp.

Institutional FX

Integral reports lowest FX volume in two years

Foreign exchange trading volumes dropped in November across Integral’s trading platforms as currency markets saw a relatively quiet period after consecutive months of strong trading activity.

Technology

CDEX: Avelacom announces connectivity to Cboe Europe Derivatives

“We anticipate that many of our customers from Asia will be particularly interested in getting exposure to pan-European products via just one venue, which CEDX offers.”

Retail FX

BUX acquires Spanish Ninety Nine’s retail brokerage unit

“Thanks to this acquisition, Ninety Nine users will have access to a wide range of services provided by BUX, such as investing in Spanish, European and US stocks, ETFs, cryptocurrencies, fractional investing and the BUX Savings Plan.”

Digital Assets

SEBA and HashKey partner to expand crypto in Hong Kong and Switzerland

SEBA Bank AG has announced a new strategic partnership with HashKey Digital Asset Group as part of both firm’s expansion efforts in Hong Kong SAR. 

Executive Moves

Broadridge appoints Martin Koopman as Chief Product Officer

“Martin has a proven record of driving product innovation both at Broadridge and at previous companies. His vision and proven ability to execute will be invaluable as we become the foremost SaaS provider to the financial services industry.”

Digital Assets

DAM rolls out Moonwalkers v1 testnet ahead of support for yield-generating collateral

“We want to champion innovation by making it easier to securely direct stablecoin liquidity away from Ethereum towards newer networks without the constant vulnerabilities posed by bridges. d20 will help accelerate the adoption flywheel of emerging networks, and this is our first step towards making our omnichain promise a reality.”

Institutional FX

FIA EXPO: ICE’s Brian Norris talks ESG investment, carbon credits and market data

The FIA Futures & Options Expo, now in its 38th year, convened the listed derivatives dealers, thought industry leaders and other stakeholders for two days of networking.

Retail FX

Malaysia regulator exposes OctaFX clone, shady FB profiles

Malaysia’s financial regulator today warned online investors about the risks of following investment tips made on social-media platforms.

<