The New Money Brief covers the global rise of digital currencies and their disruption of payments, and much else.
Delivered several times a week. Created and edited by Marc Andrew.
This week, Hong Kong and Japan both took strides toward the regulation of stablecoins, reflecting their rising importance in the global financial landscape.
But what are stablecoins, and why do they matter?
Unlike other types of cryptocurrencies such as Bitcoin or Ethereum, known for their volatile price fluctuations, stablecoins aspire to maintain a constant market value. This stability is typically achieved by pegging each unit of the stablecoin to a currency, most often the U.S. dollar.
The appeal of stablecoins is to bring the benefits of cryptocurrencies - secure, efficient, and private cross-border transactions - without the price volatility that often hinders the widespread acceptance of crypto for everyday commerce.
Demand for stablecoins has been surging, especially in the developing world where moving money across borders is complex. And more more recently issuing firms have found the stablecoin business to be wildly profitable, thanks to the interest earned on their reserve holdings.
The scenario is reminiscent of a generation ago when the eurodollar emerged in London due to a burgeoning demand for U.S. dollars.
A similar phenomenon is unfolding today with stablecoins. Despite the cautious pace of regulatory responses from Congress and the Federal Reserve, the appetite for U.S. dollars in the form of stablecoins is growing across banks, firms, and jurisdictions worldwide.
How impactful could American domestic regulation be? A recent paper by a prominent financial regulation scholar predicted a significant flight of bank deposits toward stablecoins once regulations arrive - drawing as much as 20% of deposits from traditional banks.
On with the clips:
Hong Kong-based qualified custodian and trust company First Digital is introducing a new stablecoin that will be pegged to the U.S. dollar, but regulated in Asia.
Dubbed "First Digital USD," or FDUSD, the coin is intended to be backed on a one-to-one basis by one U.S. dollar or asset of equivalent fair value, the company said in a statement, adding that the reserves would be held in segregated accounts at institutions in Asia.
The stablecoin is programmable and capable of enabling the execution of financial contracts, escrow services and insurance without intermediaries, First Digital said.
Source: The Block
Lee Yiu Tung/ shutterstock.com
Japanese banks small and large are on track to start issuing stablecoins this year under legislation taking effect Thursday.
Stablecoins -- cryptocurrencies pegged to legal tender, a commodity, or another underlying asset -- are designed to buffer against major fluctuations in value. Examples include Tether and USD Coin.
The market capitalization of stablecoins totaled $129.5 billion as of Tuesday, according to CoinMarketCap.
Because stablecoins more or less maintain constant values, they can be used in real-world applications, such as wiring funds or making payments. Unlike e-money, such as stored-value cards, stablecoins are easier to exchange across platforms. The technology enables cross-border payments as well.
Source: NIKKEI Asia
BRICS nations asked the bloc’s specially created bank to provide guidance on a how a potential new shared currency might work, including how it could shield other member countries from the impact of sanctions such as those imposed on Russia.
The foreign ministers of Brazil, Russia, India, China and South Africa convened in Cape Town earlier Thursday to discuss how the bloc can win greater global influence and to challenge the US. While they didn’t reach firm conclusions, the use of alternative currencies was among the prominent talking points.
The BRICS are looking to “ensure that we do not become victims to sanctions that have secondary effects on countries that have no involvement in issues that have led to those unilateral sanctions,” Naledi Pandor, South Africa’s minister of international relations, told reporters after the meeting.
Source: Bloomberg
The implementation of central bank digital currencies as the primary medium of exchange would exacerbate the flaws of our current fiat system which encourage banks to overextend credit and create liabilities that they cannot redeem.
This will worsen the already recurring cycles of financial crises, writes Vibhu Vikramaditya.
The Bank of England recently proposed a reform of its monetary system, advocating for the eventual elimination of cash and the adoption of digital currency as the primary medium of exchange. This proposal has significant implications for the financial and banking system and requires careful debate and discussion among policymakers, economists, and the general public. While the Bank of England highlights potential benefits, such as increased efficiency and security in payment systems, better monetary policy implementation, and reduced risks associated with the shadow economy, there remain concerns about potential negative effects, such as increased fragility and inflation and an increase in moral hazards. Therefore, thorough examination and consideration of the implications are necessary before implementing such a fundamental shift in the way money is used and managed in the modern economy.
Source: ProMarket
Cowen, the boutique investment bank acquired this year by TD, has shut down its crypto arm, Cowen Digital, according to emails seen Wednesday by Bloomberg.
Cowen had launched digital asset services in March 2022. An email seen by Bloomberg indicated May 31 was “the last day” for the unit and its 10 employees.
Cowen, the boutique investment bank acquired this year by TD, has shut down its crypto arm, Cowen Digital, according to emails seen Wednesday by Bloomberg.
Cowen Digital launched in March 2022 to provide institutional clients with access to the crypto market. At the time, Dan Charney, Cowen’s co-president, said Cowen Digital had been trading crypto on behalf of clients for several months.
The firm teased at the time that it would eventually offer services around derivatives and futures, financing solutions, decentralized finance and NFT access.
Source: Banking Dive
The central banks of Hong Kong and the United Arab Emirates have announced plans to strengthen their financial cooperation—and work together on regulating virtual assets.
A bilateral meeting was held in Abu Dhabi, with financial infrastructure and cross-border trade settlements also on the agenda.
Their focus on cross-border trade settlements could open up the possibility of central bank digital currencies being used.
The central banks of Hong Kong and the United Arab Emirates have announced plans to strengthen their financial cooperation—and work together on regulating virtual assets.
A bilateral meeting was held in Abu Dhabi, with financial infrastructure and cross-border trade settlements also on the agenda.
Source: Decrypt
At the 2023 Digital Monetary Institute symposium in London, Tommaso Mancini-Griffol, deputy division chief of monetary and capital markets at the International Monetary Fund, said that Libra, Facebook’s attempt at a global currency, delivered a ‘collective shock’ to the public sector. He highlighted the inadequacies of cross-border payments: high costs, low speed and inadequate transparency.
One of the most promising solutions to these problems is the interconnection of central bank digital currency systems. This is an attractive concept because of the global surge in CBDC development. It is hoped that, as these state digital payments systems emerge, the work of creating a seamless cross-border payments system to bridge the gaps will already have been done.
Source: OMFIF
While many countries now offer bank payments in the blink of an eye, moving funds between accounts in the US can still take days.
Electronic platforms such as PayPal Holdings Inc.’s Venmo and Block Inc.’s Cash App offer various workarounds to speed up the process, but they are essentially intermediaries that interface with the slow banking system.
Now the Federal Reserve has created a high-speed transportation lane that allows for bank transfers within seconds. Here’s what you need to know about the new service, FedNow, which launches in July.