Some pundits and central bankers see regulation as the way forward. And overseeing stablecoins and crypto exchanges would be a much easier affair than exercising controls over individual financial crypto products.
Some pundits and central bankers see regulation as the way forward. And overseeing stablecoins and crypto exchanges would be a much easier affair than exercising controls over individual financial crypto products.
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Money is one of the many things that have experienced the Midas touch of technology. Currencies are now going through a digitization experience. About 105 countries, representing more than 95% of global GDP, are exploring central bank digital currency (CBDC) for their citizens.
CBDCs are the latest in a series of ongoing innovations in the money markets. These are virtual currencies backed and issued by the central bank of a country. And they were developed to increase financial inclusion and counter the growing influence of cryptocurrencies and stablecoins.
Central banks in several countries realized that they had to provide an alternative to Bitcoin, or pass the future of money. Digital currencies have been launched in 10 countries, with the Chinese pilot set to expand in 2023. Nigeria, Africa’s largest economy, launched its CBDC in October 2021. Jamaica is the latest country to launch a CBDC, the JAM-DEX.
The Indian RBI has drawn up plans to introduce CBDCs in the next fiscal year. In its annual report for 2021-22, the central bank proposed taking a graduated approach to introduce the CBDC.
While central bankers are busy tweaking the monetary system with digital currency experiments, private players are also infusing the market with their own tokens. And some central bank governors are open to the idea of having private tokens issued alongside CBDCs. They see private tokens better than CBDCs.
Australia’s central bank governor, Phillip Lowe, said corporate-issued private digital tokens could be better than central bank-issued tokens, assuming companies can be appropriately regulated.
Mr. Lowe suggested that strict regulation could help mitigate the risks to the public. His suggestion should be seen in the context of the collapse of Terra USD stablecoin two months ago. TerraUSD (UST), now replaced by TerraUSD Classic (USTC), lost its peg and caused the value of the entire Terra ecosystem to plummet. This caused a multi-billion dollar domino effect in the global crypto market.
Despite the collapse of the multi-billion dollar scale, several experts do not see the end of cryptocurrencies or stablecoins. They see the technology and innovation that underpins these developments as likely to be key to the evolution of the financial system.
Some say regulation is the way to go. And overseeing stablecoins and crypto exchanges would be a much easier affair than exercising controls over individual financial crypto products.
This approach is fundamentally at odds with crypto proponents. The latter are building their system on blockchain technology to keep intermediaries, including central bankers, away from their digital ecosystem. There is a hazy picture of the direction things will take in the next few years: towards a regulated future. And meanwhile, the Midas Touch will transform financial systems with a layer of technology.
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