One of the biggest news this year is the announcement of the upcoming launch of the Facebook Libra coin project. A group of companies have come together to manage a basket of fiat currencies. They will maintain the digital token as a stable and redeemable value. The token not only follows the idea of stablecoins but has taken it out of the crypto chamber and put it on the public arena.
The announcement, needless to say has sparked a raging debate among government officials, businessmen and top government officials. And yet, the debate has only began. As we speak, a vast number of stablecoins are being prepared for the global economy Asia being the ground zero in the supremacy battle.
China’s New Stablecoin
The news is as terrifying as it is exciting, especially considering that the biggest player in the battle is not a bank, startup nor a tech company, it’s the Chinese government.
The forthcoming bank backed digital currency by the Peoples Bank of China known as CBDC is not necessarily a stablecoin. It is a digital version of renminbi. The move by china inevitably drives other entities, public and private to develop their own digital fiat.
Stablecoins and CBDC potentially solve the biggest hurdle that smart contracts and blockchain project face. Currently, those using blockchain in remittances and supply have two options in their payment methods. An on chain integration of a volatile cryptocurrency e.g. bitcoin which most people don’t use, or run it off chain through an existing banking system.
Financial Currencies To Come Sooner Than Expected
Central banks will follow china’s move due to the fear that the digital renminbi will gain a bigger role in the international trade.
Days before news on china’s CBDC progress was reported, Agustin Cartens, the head of Bank of International Settlements who had previously dismissed the value of digital currencies, told the financial times that the central bank financial currencies might now come sooner than expected
Regional central banks like Thailand’s have already started experimenting with digital currencies for interbank transfers.
Fear Of State Surveillance
The main problem right now is that CBDC may raise fears of state surveillance. China especially, where the encroachment of civil freedoms has been an issue of concern. People and enterprises don’t want the government much less foreign governments monitoring their expenditures.
An opportunity lies for stablecoins from non-government and crypto developers if they can offer stronger privacy assurances than the Facebook Libra designers
Reserve backed stablecoins and algorithmic stablecoins are among the choice now. The former once dominated the Hong Kong based tether USDT. However doubts were raised concerning the opaqueness of the reserve management system. Since then a new set of coins, backed by a tightly regulated entity has taken prominence
When it comes to algorithmic stablecoins, Dai is the clear leader, Dai is a dollar dominated token developed by Ethereum based marker Dao and is managed on smart contract and collaterised ether loans.
With algorithmic stablecoins, they have an advantage of not relying on third parties. Reserve model on the other hand require an identified entity to stand between declared holdings of fiat.