In the last two years, we have seen a lot of interest from central banks and the authorities in a stable foreign exchange market. The reason for this is the development of the central bank’s digital currencies or CBDCs.
The idea of issuing a digital alternative to cash is a big boost for central banks. This allows them to have greater control over the transfer and processing of non-cash transactions, which are currently indirectly controlled by private payment systems and banks.
About the topic: Has the central bank’s digital currencies affected the cryptocurrency in 2020, and what will happen in 2021? Experts answer
A number of pilot projects and measures have been implemented for CBK customers, which have already been launched by several central banks, and others will be implemented in the near future. However, it is important to note that CBDC has nothing to do with cryptocurrencies or stack coins that are known in the crypto community – they are not meant to be used much in trade; Some of them do not even trade in cryptocurrencies. The central bank’s digital currencies are simply a digital alternative to cash, over which the central banks have full control.
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Central bank currencies and stack coins
A reasonable question arises: If the central bank’s digital currencies and central stack coins address different market needs, why not coexist? In principle, they can, but at a very high price for the latter.
When it comes to exercising control over money in any way, central banks are very strict and straightforward – if you want to be a part of it, you need strict regulation. When central banks enter the world of cryptocurrency, they will apply the same principles to any current market participant.
An excellent example of this approach can be found in a bill presented to the US Congress at the end of November 2020, called the 2020 Stable Currency Classification and Regulation Act. According to the bill:
A stable currency can only be issued by a trusted custodian that is a member of the Federal Reserve System.
The issuance of a stable currency or the provision of stable currency services requires the written permission of the relevant Federal Banking Agency and the Federal Reserve.
In short, the law seeks to apply banking rules to key issuers of stack coins, which can have a serious impact on stack coins currently on the market. Some of them are not regulated at all, while others are regulated. However, this is not as strong as the bill suggests.
Without going into the details of each specific jurisdiction or the future of individual legislative initiatives, it is clear that a similar approach can be taken by regulators outside the United States.
Are there decentralized stack coins installed to replace old coins?
It is also obvious that the modern cryptocurrency industry cannot be imagined without stable currencies, and the possible disappearance of key stable currencies at the moment can have irreversible consequences for the market. However, this effect can be mitigated by converting liquidity into stable decentralized currencies that can provide a competitive alternative and at the same time go beyond the rules of the central bank.
The main problem with decentralized stack coins is conceptual – the absence of an issuer automatically leads to a lack of stability, guarantees, legal obligations and management. Currently, there are a large number of decentralized protocols that seek to solve this problem by delegating control to the public, and ensuring full transparency and control over security measures represented by cryptocurrency or other stable currency.
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While part of the problem is solved, the above leaves a stability problem in the air. Using cryptocurrencies as security is the most obvious solution for decentralized protocols when it comes to transparency, but at the same time it cannot compete with US dollar-denominated stablecoins in terms of stability (yes, DAI, we look at you now).
Thus, it seems that the optimal solution can be a stable, decentralized, community-controlled currency linked to real assets of constant value – currencies, debt obligations, etc. The emergence of such solutions can have a significant impact on today’s stable currency industry, giving traders a stable and a transparent alternative to existing central stack coins, which are on the verge of being removed under pressure from regulators and central banks.