TomiEx: CBDCs would end up losing competition from global stablecoins

Central bank digital currencies, or CBDCs, are unlikely to significantly solve the problem of international trade facilitation online services, unless central banks impose heavy regulations on global stablecoins like Diem.

The reason is that there are too many international expectations associated with state-controlled digital currencies. The great hopes are linked to the internationalization of certain currencies such as the Chinese Yuan. But, in the case of the Chinese e-CNY – which is the digital yuan – the main objective of introducing digital currency was to replace cash and fight against other monetary substitutes used to effect online payments via WeChat and other applications with internal Payment system.

Thus, with the major implementation of an e-CNY, the People’s Bank of China (PBOC) should continue to eradicate cash to gain full control over the flow of money in the country. Following this logic, the internationalization of the yuan would rather be limited to central bank-to-central bank payment agreements, even if a multi-digital currency agreement with a single payment platform operated jointly and recognized local identification access. by citizens of participating countries have been established.

In addition, the introduction of various CBDCs would not facilitate tourism, as payment transactions as a foreign tourist would likely be limited to a specific selection of goods and services. Payments through businesses would still be limited even in the tourism sector, which would diminish the importance of the country’s digital currency for international settlements.

Foreign CBDCs could put additional pressure on the banking system and pose cybersecurity risks. Three U.S. Republican Senators recently called on the International Olympic and Paralympic Committee to ban U.S. athletes from using the e-CNY during the Winter Olympics in China which will begin in February 2022. And the reason for the concern is that the payment application with the digital wallet may carry state-mandated spyware code and will allow tracking of US citizens even upon their return. So, at least in the United States, the use of the digital yuan can face strong opposition from policymakers, even when it comes to interbank settlements.

Fears of a possible substitution of the national currency by a stronger foreign currency and of possible tax evasion. These spillovers can threaten countries with high inflation and other adverse economic conditions.

So far at the government level, it is more mistrust and skepticism of a single international digital payment system that would be used by many central banks to eclipse the sentiments of the international CBDC. Major global monetary policymakers like the Federal Reserve in the United States do not fully understand the purpose of issuing digital dollars. Randal Quarles, vice chairman of oversight at the Federal Reserve, said in June that CDBC looks more like a fad when many dollar transactions are already virtual and some of the potential benefits of an official digital currency can be achieved. by other means.

On the other hand, global private stablecoins are typically backed by cash reserves or a liquid asset that could easily be turned into cash like US Treasuries. Such stablecoins usually emerge in ecosystems built on top of large financial institutions or global IT companies recognized around the world. The brightest and most successful examples of these IT giants are WeChat, Alipay, Baidu Wallet, and Sina Weibo. WeChat Pay users topped 900 million in 2021, and the service has taken over Alipay as the most popular payment service in China, although Alipay is the world leader with 1.2 billion users. It is reported that Chinese users can use WeChat Pay in 25 countries outside of China.

Currently, the Chinese government is trying to exploit the development of these IT giants as they become too strong and popular, taking control of the country’s banking institutions. Overall, it seems that Chinese leaders have underestimated the enormous concentration of financial power and the large amount of personal information collected by these digital monsters.

The same concerns are being raised by regulators around the world investigating whether Facebook, Google and other internet giants are leveraging their dominance to crush competition or abuse user data. The Facebook-supported Diem cryptocurrency, which is slated to launch later this year, is said to work across the entire Facebook ecosystem, including WhatsApp and Instagram.

Diem is linked to a single currency like the US dollar and the euro and is backed by assets comprising cash, cash equivalents and very short term government securities. Widely criticized by US policymakers in Congress, Diem or Libra, as it was originally called, can serve as an example for the large corporate ecosystem with its own stable currency backed by liquid assets in major global currencies.

Needless to say, if Google, Amazon, and Apple had their own “pay” systems, the same kind of technology would be used to create a stand-alone system that would attract retailers and service companies, pushing the banking industry out of business.

And that could be a near reality, as the Federal Reserve seems to be praising stablecoins issued by the private sector that could help solve some of the inefficiencies and inequalities in the current payment system, according to the same Randal Quarles.

Michael Domar, CEO of TomiEx Exchange and TEX Coin https://tomiex-tex.com/

Warning: This is a sponsored article brought to you by TomiEx.

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