Here is our pick of the 3 most important stablecoin stories during the week.
CBDC or Stablecoin or Both??
It seems to me that a major tussle is about to break out between Central Bank stablecoins (or CBDC’s) and privately issued coins such as Circle or Tether. Will the Regulators give themselves a prime seat at the table at the expense of the others?
But first, many Central Banks are still trying to figure out what if anything they should do. The Reserve Bank of Australia (RBA) is expecting to complete its central bank digital currency (CBDC) pilot by mid-2023, according to a white paper published last week.
The purpose of the pilot is to “explore innovative use cases” that could be supported by the issuance of a CBDC, a media release said. The white paper, which is a document produced by the bank that can later be used to inform future laws, said the project was also looking into regulatory considerations associated with a CBDC.
Australia’s CBDC Pilot to Be Completed in 2023 (coindesk.com)
However, the European Union is pushing ahead with the passage of the Markets in Crypto-Assets (MiCA) that aims to instil regulatory clarity around crypto assets.
The MiCA framework limits the volume for stablecoin payments to $200 million per day. This is too low of a cap to gauge its success and is ultimately only helpful in stifling innovation and hindering what these assets can offer. Take the perspective from Belgium, where, as of July 1, 2022, all merchants must offer at least one digital payment solution. But, here’s the catch: Cryptocurrency and stablecoins are not accepted as valid forms of digital payment under this provision.
MiCA’s limitations stand to hold back the potential of EUROC (Circles recently announced EURO stablecoin) and other digital assets. And unless this barrier is overcome, the EU may not see the type of adoption required to lead crypto innovation on an international scale. And, it risks seeing the role of the euro as an international currency severely diminished.
The European Union is stifling stablecoin adoption (cointelegraph.com)
And finally, one year in, the digital euro project has just published a new progress report. A short summary;
- The digital euro would be to preserve public money as a monetary anchor for the economy, a role now played by cash. Perhaps, in the future, cash will no longer be used, therefore a digital anchor is needed.
- Another key objective would be to strengthen Europe’s strategic autonomy and economic efficiency when it comes to retail payments. This market is now too dependent on non-European infrastructures.
- The main use cases for the digital euro would be e-commerce, point-of-sale, person-to-person, as well as payments between citizens and government entities.
- Two payment mechanics are being considered. The default option is online accounts. A possible additional is offline device-to-device payments. In online, funds are held at the central bank and payments are settled there. In offline, monetary value is stored on a user’s device.
- Privacy is considered important, but full anonymity will not be possible. Intermediaries would have visibility on their own customers for compliance purposes. The central bank would have minimal visibility on data.
- Mechanics would be built in to prevent hoarding. These could be a combination of holding limits and tiered remuneration. Building these mechanics into the product does not imply how and when they would be used. That would require a separate policy decision.
- Next, the project will experiment with prototypes. A year from now, the GovC will decide if to move ahead to a realisation phase, which would build the product but not commit to launching it. Launch would require a separate decision and also depend on legislative development.
Progress on the investigation phase of a digital euro (europa.eu)
So in summary, from my cynical perspective, the MiCA legislation from the EU is looking to cap privately issued stablecoins to a very low 200m per day usage level, while the ECB is working on getting its act together so that it is the only game in town.
Alan Scott is an expert in the FX market and has been working in the domain of stablecoins for many years.
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.