G30: Stablecoins Risk Fragmentation, Threaten Trust!
Wholesale CBDCs must lead the charge, BTC not money.
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The G30 examines the transforming landscape of money, including crypto, stablecoins, and CBDC, and urges governments to hurry up with wholesale CBDC.
This report is a MUST-READ as it is the best summary of the state of payment tech I’ve seen!
The top-line author is Harvard’s Kenneth Rogoff, and it looks at how new payment technology succumbs to financial risks that remain very old!
On stablecoins:
Let’s go straight to their findings on stablecoins, which acknowledge their ability to make the global financial system more inclusive, to speed transactions, and to enable new contracts.
But these benefits come at the price of additional risk:
“Stablecoins could fracture the singleness of money. If stablecoins become a widespread medium of exchange, then much of the money businesses and households use could circulate at fluctuating rates.
Today, there are only a handful of key stablecoins, but as stablecoins grow in popularity, more companies will issue them. An Amazoncoin could differ in value from a Walmartcoin, which could differ in value from USDC, all of which could vary from a dollar in the regulated banking system.
Such a world would in many respects return the financial system to the free banking era of private banknotes circulating at fluctuating rates. Transactions could become more complex, trust in the system could diminish, and fragmentation could once again become the order of the day.”
On CBDCs:
The paper makes a key point that I have made consistently when examining the narrowing gap between CBDC and stablecoin regulation:
”it is important to note that those who argue that CBDCs will always lose out to stablecoins because the latter carry fewer regulations and restrictions miss the point that ultimately, the two will need to be governed fairly similarly and not only in parallel with paper currency, but in parallel with bank cards, including tracing identities.”
Clearly the G30 promotes maintenance of the two-tier monetary system":
“CBDCs and tokenized deposits represent possible paths toward a 21st century monetary system that can strengthen, rather than undermine, the two-tier system.”
On Tokenized Deposits:
“Tokenizing deposits could bring about many of the potential benefits of stablecoins, such as faster payments and programmability, while doing so within the two-tier structure. To date, there has been little movement in tokenizing deposits, but the competition from stablecoins may spur greater interest within the banking sector.”
On BTC and Crypto:
“In an area changing as rapidly as crypto, one hesitates to make declarative statements. But at least for the present and foreseeable future, Bitcoin is not money. That does not mean, however, that it has no market, is of no use, and is of no value. Bitcoin might compare favorably to the domestic currency in countries with broken systems.”
On Geopolitics:
”Lastly, many countries believe that access to the payment system has become political, that the dollar has become weaponized. As such, they find the current international monetary system unsatisfactory and are seeking alternatives to the dollar. Consumers and businesses that have lost access to the dollar payment system or are wary of losing access have turned to cryptocurrencies, for example, to conduct transactions.”
👉G30 Recommendations
🔹 First, CBDCs offer the potential to bring public money into the digital age and strengthen the anchor of central bank money. Central banks should redouble their efforts on research and pilot programs, with a focus on wholesale CBDCs. Those central banks considering retail CBDCs will need to work with stakeholders to allay fears about privacy and other concerns.
🔹 Second, since not every country will launch a CBDC in the near future, innovation should be encouraged in com- mercial bank money. Banks, working alongside regulators and supervisors, should continue to explore tokenized deposits. Policymakers should work on improvements to public sector infrastructure, such as 24/7/365 settlement, to create a conducive environment for such innovation.
🔹 Third, policymakers should create regimes for stablecoins that promote transparency, safety, and integrity. There are different models for doing so, but the current state of play, where the issuer of the largest stablecoin in the world does not provide audited statements and holds questionable backing assets, is not acceptable.
The constant refrain should be “same activity, same risk, same potential for facilitating tax evasion and illegal acts, same regulatory outcome.” Some access to the central bank’s balance sheet for systemic stablecoin issuers—whether through requirements to hold deposits at the central bank or access to emergency central bank support—could become necessary to ensure trust in the system if stablecoins continue to grow. Any access to the central bank balance sheet must involve commensurate regulation and supervision.
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