What are stablecoins and how do they work?

FT banking and fintech reporter Siddharth Venkataramakrishnan looks at how the digital assets are used, why they are growing in popularity - and why they are in regulators' sights.

 

Could digital currencies make money more fragile?

While the future is unpredictable, one where digital currencies dominate both money and payments seems a reasonable possibility. The benefits of convenience, lower cost and the possibility of greater financial inclusion seem irresistible. 

However, An area that hasn’t attracted sufficient attention is the potential increased fragility of money. And this has nothing to do with volatile cryptocurrency valuations. 

Find out more HERE.

CBDC and Cryptocurrencies are NOT the same

As millions of people start to take an interest in the world of crypto, it is important to understand the difference between a Central Bank Digital Currency (CBDC) and a Cryptocurrency like Bitcoin.

The growth of cryptocurrencies like Bitcoin and Ethereum has led to a greater interest in the technology behind these currencies from startups, individuals and governments alike.

There are many pros and cons to the CBDC economy. Jumping to conclusions based on incomplete understanding of the CBDC world is rife, especially since misinformation abounds and not much has been made public about the launch of the CBDCs by some of the economic giants in the world. 

Find out what these differences are in Arti Agarwal's article "Why CBDCs Are NOT The Same as Cryptocurrencies Like Bitcoin" HERE.

.

 

Is the rush to CBDCs just a fad driven by FOMO?

U.S. Federal Reserve Vice Chair for Supervision Randal K. Quarles called the global rush to roll out central bank digital currencies (CBDC) akin to the 1980s parachute pants fad and FOMO, or the “fear of missing out.”

He was speaking at  the 113th Annual Utah Bankers Association Convention, Sun Valley, Idaho.

He drew a parallel to the world’s knee-jerk infatuation with digital currencies.

“Before we get carried away with the novelty, I think we need to subject the promises of a CBDC to a careful critical analysis,” he said in his remarks.

You can read his full speech "Parachute Pants and Central Bank Money" HERE.

Other comments from PYMNTS.com HERE.

CBDCs and the opportunities for the monetary system

Central bank digital currencies (CBDCs) offer in digital form the unique advantages of central bank money: settlement finality, liquidity and integrity. CBDCs are an advanced representation of money for the digital age and the digital economy.

Digital money should be designed with the public interest in mind. Like the latest generation of instant retail payment systems, retail CBDCs could ensure open payment platforms and a competitive level playing field that is conducive to innovation.

The BIS, in its Annual Report, to be published later today, has a full chapter on central bank digital currencies. Read the full chapter HERE.

 

Here comes official e-money

Technology has changed everything. Bitcoin has moved from being a gimmick to a supposed “financial asset”. The stock market, once the preserve of the specialist broker has become the stomping ground of the digital day trader, and have become a real force on Wall Street. China’s digital payments giants are being closely pursued by America’s PayPal. With its 392 million users, PayPal has become a force in its own right.

Now, a new development, barely noticed on the murky frontier between technology and finance could become the most revolutionary of them all. The government digital currency.

Imagine if people could deposit directly with the central bank; conventional lenders would be completely sidelined.

Government digital currency or “Govcoins” are a new manifestation of plain old fashioned money, those coins and notes we all know so well.

“Govcoins” not only promise to make finance work better, they have the potential to upend the financial system.

The last decade has seen a revolution in banking and payment systems. Experiments abound.

Read the full story HERE.

 

The likely impact of central bank digital currencies on quantitative easing

Many central banks are considering launching digital currencies. Far from a simple technological innovation, central bank digital currencies (CBDC) might persistently alter the size and composition of central bank balance sheets. Martina Fraschini, Luciano Somoza and Tammaro Terracciano analyse the equilibrium effects of the introduction of a CBDC and its interaction with current monetary policies. They show how and when issuing a CBDC might render expansionary policies quasi-permanent.

Read their insightful article HERE.

Central banks and BIS have published their first central bank digital currency (CBDC) report laying out key requirements

Seven central banks and the BIS have release a report assessing the feasibility of publicly available central bank digital currency (CBDC). The aim is to help central banks deliver their public policy objectives.

The report outlines base principles and core features of a CBDC, but does not give an opinion on whether to issue digital currencies. Central banks will continue investigating CBDC feasibility without committing to issuance.

The report, Central bank digital currencies: foundational principles and core features, was compiled by the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, Sveriges Riksbank, the Swiss National Bank and the BIS, and highlights three key principles for a CBDC:

• Coexistence with cash and other types of money in a flexible and innovative payment system.
• Any introduction should support wider policy objectives and do no harm to monetary and financial stability.
• Features should promote innovation and efficiency.
  

The group of central banks will continue to work together on CBDCs, without prejudging any decision on whether or not to introduce CBDCs in their jurisdictions.

Based on these principles, the group has identified the core features of any future CBDC system, which must be:

• Resilient and secure to maintain operational integrity.
• Convenient and available at very low or no cost to end users.
• Underpinned by appropriate standards and a clear legal framework.
• Have an appropriate role for the private sector, as well as promoting competition and innovation.
  

Further development of CBDCs requires a commitment to practical policy analysis and applied technical experimentation. While this has already started, the speed of innovation in payments and money-related technologies requires the prioritisation of collaborative experimentation.

Future activities will include exploring other open questions around CBDCs and the challenges of cross-border payments, as well as continuing outreach domestically and with other central banks to foster informed dialogue on key issues. Work by the BIS Innovation Hub, which serves the broader central banking community, will contribute to this objective.