Over the past two years, we have seen a lot of interest from central banks and governments in the stable currency market. The reason for this is the development of central bank digital currencies or central bank currencies.
The idea of issuing a digital alternative to cash is a major incentive for central banks. This allows them to have better control over the transmission and processing of cashless transactions, which are currently controlled indirectly through private payment systems and banks.
On this topic: Has the CBD affected the crypto space in 2020 and what after 2021? Expert response
There have been a number of pilot projects and initiatives on central bank digital currencies that have already been launched by many central banks, and there are more to come in the near future. However, it is important to note that CBDC has nothing to do with cryptocurrencies or cryptocurrencies known in the cryptocurrency community – and is not intended to be widely used in trading; Some of them are not exchangeable even for cryptocurrencies. The CBDC is simply a digital alternative to cash, fully controlled by central banks.
Related: Central Bank digital currencies are dead in the water
CBDC and stablecoins
It raises a reasonable question: If central bank digital currency and central stack coins solve different market needs, why not coexist? In principle, they can, but at a very high price for the latter.
When it comes to exercising control of money in any way, central banks are very strict and straightforward – if you want any of them, you have to be tightly regulated. When central banks enter the realm of cryptocurrencies, they will apply the same principles to any current market participant.
A good example of this approach can be found in a bill introduced to the US Congress in late November 2020 called the Stable Currency Classification and Regulation Act of 2020. According to the bill:
Stack currency can only be issued by a secure depository institution that is a member of the Federal Reserve System.
Issuing stable currencies or providing any stablecoin-related services requires written permission from the appropriate Federal Banking Agency and Federal Reserve.
As such, the bill aims to apply banking rules to stable central issuers, which could have a significant impact on the stablecoins currently on the market. Some of them are not regulated at all, while others are. However, it is not as strong as the bill suggests.
Without going into the details of each jurisdiction or unique future legislative initiatives, it is clear that a similar approach could be taken by regulators outside the United States.
Have decentralized hoarding coins been installed to replace older coins?
It is also evident that the modern cryptocurrency industry is unimaginable without stack coins, and the potential disappearance of coincident coins nowadays may have irreversible consequences for the market. However, this effect can be mitigated by converting liquidity into stable decentralized currencies, which can provide a competitive alternative and, at the same time, bypass central bank rules.
The main problem with decentralized hoarding currencies is a conceptual one – the absence of the issuer automatically leads to instability, guarantees, legal liability, and governance. Currently there are a large number of decentralized protocols that wish to solve this problem by delegating control to the public and providing complete transparency and control over the securities represented by cryptocurrencies or other stacked coins.
On this topic: You can’t talk about blockchain, disconnection from CBDC and stablecoins.
Although part of the problem is resolved, the above leaves an air stability problem. Using cryptocurrency as collateral is the most obvious solution to decentralized protocols in terms of transparency, but at the same time, it cannot compete with US dollar denominated stacked coins in terms of stability (yes, DAI, we’re looking at you now).
Thus, it appears that the ideal solution would be a stable, decentralized currency in society, tied to real assets of constant value – currency, debt, etc. The emergence of such solutions could have a major impact on the current stable foreign exchange industry, providing traders with a stable and transparent alternative to today’s central stablecoins, which are on the right path to liquidation under pressure from regulators and central banks.