Central Banks, Stablecoins and the Looming War of Currencies

As reported by CoinDesk, “Facebook’s Libra project, in which a group of companies managing a basket of fiat currencies will maintain a digital token at a stable, redeemable value, has taken the idea of “stablecoins” out of the crypto echo chamber and thrust it into the public arena.

“But if the raging debate that Libra sparked among government officials, financial executives and businessmen seems overwhelming, you better get used to it. A flood of competing stablecoins is coming to the global economy. And Asia, with its vibrant cross-border trade, might be Ground Zero in their battle for supremacy.

“This is both exciting and somewhat terrifying.

“By far the most important player here is not a startup, a bank, or even a tech company. It’s the Chinese government.

“The People’s Bank of China’s forthcoming central bank-backed digital currency, or CBDC, is not a stablecoin per se – its value isn’t just expressed in terms of a fiat-currency benchmark; it’s a fully digital version of the renminbi itself. Still, China’s move will inevitably drive other entities – private and public – to develop their own actual or de facto digital fiat currencies.

“CBDCs and stablecoins potentially solve one of the biggest problems dogging smart-contract and blockchain projects. Until now, designers of blockchain solutions for, say, supply chains or remittances had two choices of payment mechanism: they could do an on-chain integration of a volatile, cryptocurrency such as bitcoin that most people don’t use or they could run it, inefficiently, off-chain through the existing, clunky banking system. If, instead, a proven monetary unit such as the dollar had programmable, smart-contract qualities of its own, significant new efficiencies in commerce would, in theory, be possible.”

Continue to read the full story at CoinDesk.

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