EP10 - CBDC And Regulated Stablecoins: Friend or Foe - Part 3: Conclusion
The question of whether we need regulated stablecoins if Central Bank Digital Currencies (CBDC) are already implemented, touches on a broad range of financial, technological, and regulatory considerations.
In the evolving landscape of digital finance, the emergence of CBDCs raises an important question: is there a role for regulated stablecoins in a world where a national digital currency exists as legal tender? This inquiry delves deep into a myriad of financial, technological, and regulatory dimensions, setting the stage for a nuanced exploration of how these two forms of digital assets might coexist and function within the broader monetary system.
Potential Overlap and Distinction
Both CBDC and regulated stablecoins aim to bring about greater financial inclusivity, improve transaction efficiency, and potentially enhance monetary policy implementation. However, they serve different roles and target different aspects of the financial ecosystem:
- Issuer and Backing: A CBDC is issued and regulated by a country’s central bank, making them sovereign currency, akin to digital forms of traditional fiat currencies. Regulated stablecoins, while they may be backed by fiat currencies or other assets, are typically issued by private entities and are subject to the regulatory frameworks of financial authorities. This difference in issuance and backing influences trust and adoption rates.
- Operational Flexibility: Regulated stablecoins might offer more flexibility in terms of technological innovation and integration with existing digital services because they can be developed and managed by agile private companies. A CBDC, by their status as a legal tender, may progress more cautiously and be subject to more stringent regulatory and political oversight.
- International Use: Stablecoins are more commonly used for international transactions, less for everyday purchases. A retail CBDC is primarily designed for domestic use and will need bespoke arrangements for cross-border “microtransactions” due to varying national regulations and FX considerations. For large transactions wholesale CBDCs are being explored, and piloting of such an infrastructure is already very advanced.
- Privacy Concerns: Depending on the design decisions, a retail CBDC could potentially enable governments and regulatory bodies to monitor financial transactions closely, which raises some privacy concerns. Regulated stablecoins might offer more privacy, in the form of pseudonymity – until converted into a fiat currency via an exchange.
Strategic Implications for Central Banks and the Financial System
Given these differences, there is a reasonable argument for the coexistence of both CBDC and regulated stablecoins within the global financial system:
- Diversity and Competition: The presence of both CBDC and stablecoins can foster innovation and competition, providing commercial users with multiple options that cater to different needs and use cases, depending on transaction type, location, privacy considerations, integration with digital services, and others.
- Redundancy and Security: Having multiple digital currencies can enhance the resilience of the financial system against cyberattacks, technical failures, or geopolitical tensions. If one system faces challenges, the other might function as a reliable alternative.
- Targeted Financial Products: While a CBDC can be used to direct economic policies more precisely (e.g. targeted disbursements), stablecoins can be tailored for specific commercial ecosystems, potentially driving new business models and services.
Conclusion: Friends or Foes?
CBDC and regulated stablecoins are more likely to act as complements rather than direct competitors as long as their usage is clearly defined. Both bring unique values and address different gaps in the financial system. Their coexistence could enrich the digital economy, offering robust, diversified financial tools that enhance user choice and systemic resilience. Central banks and regulators will need to craft thoughtful, adaptive policies that ensure these technologies not only coexist but also reinforce each other, enhancing the overall stability, efficiency, and inclusivity.
Leading the Charge: Chavanette Advisors
As a leading consultancy firm in financial technologies and innovations, Chavanette Advisors is at the forefront of the digital transformation reshaping the financial landscape. With a specialized focus on CBDCs and Regulated Stablecoins, we leverage our expertise to help clients navigate the evolving monetary policies and financial infrastructures of the digital age.
Through comprehensive advisory services and innovative solutions, Chavanette collaborates with financial institutions, government entities, and technology providers worldwide to design and implement effective strategies for the future of finance.
Invitation to Engage and Discover
We encourage you to delve deeper into the impact and possibilities of CBDC within the financial landscape. For those eager to explore more about Central Bank Digital Currencies (CBDCs) and the evolving landscape of central banking, the Chavanette Website, as well as our Alpha Knowledge Platform (αLP) serve as an invaluable resource. Furthermore, there is our CBDC Handbook & Encyclopedia, designed to offer comprehensive insights into this emerging field.
Join the Discussion
Join the conversation on how CBDCs and Regulated Stablecoins can reshape economic practices in the digital economy. Your insights and perspectives are invaluable as we navigate this promising digital journey.
Contact us to learn more about Chavanette Advisors’ approach to setting-up, running and scaling-up a live CBDC pilot for you.
