Stablecoin or Cryptocurrency: Both Digital Currencies a Threat To Central Banks

Stablecoins are potentially one of the most popular use cases of blockchain technology after ‘utility coins.’ Utility tokens are primarily created out of thin air or mined by spending electricity or value, whereas A ‘real world’ asset backs Stablecoins. The US Dollar backs the most popular stablecoins.

At the initial stage, the stablecoins were introduced on cryptocurrency Exchange sites to facilitate storing of value digitally. Moreover, now the central bank issued coins like JPM Coin and Facebook’s Globalcoin are adopting the same technology to implement stablecoins only. Agustin Carstens, General Manager for Bank of International Settlements, wrote in a blog post,

Central bank digital currencies could bring profound changes to the financial system, potentially crowding out commercial banks. They could also change the way monetary policy operates. The implications for monetary and financial stability need careful consideration.

Electronic Payments and Digital Currencies

This is because there is a fundamental difference between making electronic payments and using digital currencies. In digital currencies, the value is stored on the ledger, whereas, with electronic payments, the value is stored in banks. The banks then provide interest over it and use to increase revenue. This system currently forms the basis of all financial transactions.

Moreover, according to Carstens, the demand for cash is still very high as that is what is primarily used by the system even now that digital payments are on the rise. The need for digital currencies is still very low. He said,

“Some argue that a central bank digital currency would be the ultimate new central bank tool in this digital age, replacing cash altogether. But very few see a chance of turning theory into practice any time soon.”

Increasing Demand for Stablecoins

Nevertheless, due to the influence of cryptocurrencies, some part of the money is moving to digital currencies. A data reported by the Binance Exchange suggests that the demand for stablecoins was higher than cryptocurrencies are traders are looking for safer virtual currencies on the internet as well. Mati Greenspan tweeted about the fact,

“Latest report from @BinanceResearch shows how stable coins are eating the market share of crypto volumes. USDS went from 1/3rd to 3/5ths in 12 months. That’s a fundamental change.”

Also Read: Facebook’s ‘Globalcoin’ Will Credentialize Bitcoin as a Store of Value: Mike Novogratz

Furthermore, Facebook’s Globalcoin is also a landmark change in the financial payments space due to the sheer size of its network. Nic Carter, analyst, and trader expressed that the sovereign FIAT currencies will ultimately fail and private value tokens including cryptocurrencies would survive; its because they have a higher chance of appreciating. He tweeted,

Facebook has better macroeconomic data than the Fed. More credit data than most banks. Freed from political constraints, why wouldn’t they be able to engineer a currency indexed to purchasing power with attractive interest rates?

Do you think that the Federal Governments will be able to counter the new wave of transparency and accountability in the financial system? Please share your views with us. 

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Stablecoins or Cryptocurrency: Digital Currencies Are a Great Threat To Central Banks

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Stablecoins are potentially one of the most popular use cases of blockchain technology after ‘utility coins.’ Utility tokens are primarily created out of thin air or mined by spending electricity or value, whereas A ‘real world’ asset backs Stablecoins. The US Dollar backs the most popular stablecoins. 

Author

Nivesh Rustgi

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CoinGape

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The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.