CBDCs are gaining global momentum; what does it mean for Stablecoins?

Key Takeaways:

  • CBDCs’ adoption is growing around the world.
  • The Fed takes a cautious approach towards both CBDCs and Stablecoins.
  • Does it mean stablecoins will take the back seat?

YEREVAN (CoinChapter.com) – As cryptocurrencies grow in popularity and global adoption, authorities worldwide might see their decentralized nature as a threat. CBDCs or Central Bank Digital Currencies, on the other hand, present a segway into the domain of digital assets without giving up governmental control. Will CBDCs displace stablecoins?

In hindsight, a stablecoin is a specific denomination of digital assets pegged to a fiat currency. For example, the most popular stablecoin pegged to the US dollar is USDT, or Tether, the 5th largest digital asset by market cap ($68 billion).

Growing CBDC adoption

According to an online CBDC tracker, 81 countries are currently investigating the subject, but only five have fully launched a government-owned digital currency. The crypto-friendly Bahamas lead, followed by neighbor islands (St Kitts and Nevis, Antigua and Barbuda, St Lucia, and Grenada).

In addition, several countries are already launching pilots. China, Sweden, Ukraine, Singapore, Saudi Arabia, and others have advanced to practical implementation.

Countries like Georgia and Laos made headlines recently. The National Bank of Georgia announced it is ready to launch a CBDC pilot program as soon as next year. Papuna Lezhava, the bank’s vice governor, said that the institution views the upcoming CBDC (digital lari) not as a cryptocurrency but rather as an “evolution of cash.”

Laotian government also made progress in adopting CBDCs. For example, the authorities partnered with a Japan-based fintech company Soramitsu to build a cental system-owned digital asset. In addition, the CBDC will enable Laotian policymakers better economic data and enable “cross-border CBDC-based settlements” with China.

The landscape of CBDC adoption in the United States is still unclear. However, Federal Reserve Chair Jerome Powell stated that the Fed is currently developing a review. In addition, during a Senate Banking Committee hearing last week, the official referred to developing CBDC as “critical work.”

We’re working proactively to evaluate whether to issue a CBDC and, if so, in what form.

Mr. Powell asserted.

He also added that the CBDC would launch if “clear and tangible benefits outweigh any costs and risks.”

Also read: Anticipation builds around upcoming crypto-related HFS Committee hearing, as the market recovers to over 2T

CBDC vs Stablecoins

Mr. Powell voiced an opinion that if the governmental digital currency does have a successful launch, the US will not need non-governmental ones.

You wouldn’t need stablecoins; you wouldn’t need cryptocurrencies if you had a digital U.S. currency. I think that’s one of the stronger arguments in its favor.

said the Fed Chair back in July.

However, does a CBDC trump use cases for stablecoins?

The largest and most crucial difference between the two lies in the absence or presence of the regulatory body. Stablecoins are decentralized, whereas banks and governmental agencies have CBDCs under control.

Some experts believe that Fed fears stablecoins and their decentralized nature. Nic Carter, the co-founder of venture capital firm Castle Island Ventures, agrees.

I understand why they fear stablecoins. I can see why they’d be concerned with a large portion of commercial banking activity flipping over to this largely unregulated world.

said the executive.

Moreover, the absence of governmental control spurred the creation of digital assets in the first place. Holding USDT will not result in any yield, like BTC, ETH, or others. However, pegging stablecoins to a fiat currency makes them instrumental in achieving certain goals. For example, they make cross-border transfers much faster and easier than the banking system.

Also read: Bitcoin up 6,000,000,000% since launch

Are Stablecoins in danger?

It seems doubtful that the presence of a CBDC will completely overshadow the necessity in stablecoins. The founder of the fintech company Quantum Economics Mati Greenspan, has a corresponding point of view.

[Cryptocurrencies] are popular because it’s money that’s independent of politicians and bankers. People want the separation of government and money. They clearly don’t get that.

Mr. Greenspan asserted.

Moreover, the use of stablecoins has rocketed since 2017.

statistics on stablecoin use since 2017. Source: Statista.com
statistics on stablecoin use since 2017. Source: Statista.com

However, the Fed has put the regulation of stablecoins on the agenda. While Mr. Powell has no intention of banning cryptocurrencies, his stance on USD-pegged digital assets is harsh.

The upcoming months will show if the Fed will launch the CBDC program and if stablecoins will have a seat at the table.

Also read: Can ETH hit $35,000? This Standard Chartered Ethereum investor guide says yes.

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