The Crosscurrent Movement of Central Banks towards Stable Coins
According to Stablecoinindex, The Total Market Cap of the current renowned stable coins are up to USD9.32bn, with this number not even including all of the fiat-collateralized stable coins such as USDC, X8X, etc.
Since the end of 2018, various firms are turning their focus to stable coins, voicing their opinions towards central banks who have remained pretty pessimistic towards their introduction.
The Central Bank of Korea: “Stable Coin for Korea? Still Premature!”
The Central Bank of Korea recently published a report “Central Bank Digital Currency and Financial Stability” published on Feb 7th, making a very specific announcement that the issuance of the Central Bank Digital Currency (CBDC) is too much “premature”, and currently they will only be focusing on R&D.
According to bank officials, The CBDC could bring a negative effect on the financial stability of Korea, as state-owned banks and individuals can engage in direct financial transactions.
CBDC is a kind of ‘account opened’ type, rather than a blockchain (Distributed Ledger) method such as Bitcoin and Ethereum. If CBDC was to be listed on a public chain then it would require the verification of all transaction in Korea.
Analysts explained that the central bank had tested it only with a single ledger so far and they have no verification procedures in place because of its own reliability.
Comparing to the Bank of Korea’s passive attitude, the other global central banks have been a lot more proactive on R&D of their own CBDC and its issuance.
The Central Bank of China: “Digital asset, especially the state-owned stable coin is the key to the future finance ecosystem.”
Recently, there has been a tremendous stir in blockchain, especially in the Central Bank Financial system with the captivating interest of many blockchain and financial institutions, and the positive and proactive movement towards to the CBDC issuance of the People’s Bank of China. China is an emerging country who have currently locked horns in the “G2 war” with the US.
As with the case of the Korean government, China also remains fairly negative about Cryptocurrency and ICO funding, however, unlike Korea, they are showing a more positive attitude towards the introduction of CBDC, based on the blockchain.
The Central Government of China is beginning to realize how important the emerging stable coin market really is, currently being mainly paired to USD.
Why should we pay more attention to Stable Coins?
Stable Coin is linked with the real economy, and there is a high possibility that it will be actively used in online and offline outlets such as e-commerce, overseas remittance, and simple settlement. For this reason, the People’s Bank of China has recently been recruiting high profiled experts to conduct research and development (R&D) of digital currency-related software, encryption technology, security model and transaction device chips.
According to the report, The People’s Bank of China holds the largest number of patent holdings in the world, including Alibaba, IBM, MasterCard, and Bank of America (BoA).
According to Coindesk Korea, The Bank of Korea (BOK) said they have officially dismissed the virtual currency study group that has been operating for the past one year on February 29th, saying that the necessity of issuing digital currencies in the central bank has fallen due to the conditions of the Korean financial market. The study, which only focuses on the open model, is also an extension of the existing attitude that is extremely passive and negative.
What is CBDC?
In short, CBDC is a digital asset or electronic money. It has the advantage of reducing credit risk and increasing transaction transparency compared to the more traditional cash or credit cards that we are using now. CBDC has recently been attracting attention as a substitute for cash and credit cards due to its rapid implementation of “the Cashless Society”. It is natural to activate the electronic and the mobile settlement industry that incorporates IT technology, with people estimating that the movement of other countries will be much faster than Korea. For example, Sweden aggressively set a goal of eliminating cash by 2030, and Denmark has stopped coin and paper money production, with India pursuing a policy for “a cashless society” to overcome the inefficiency of the national economy.
Last year, Alipay of Alibaba made a memorable day, “A cashless, no wallet day”, making a promotion period to enable only Alipay to bloom, pursuing distribution of digital assets actively. The day was very effective, as nowadays is it becoming rarer to see people getting cash out of wallets, with people preferring to just scan a QR code on their phone.
Korea Government, why is there response to such a strong global movement towards a cashless society?
The scale of Korea’s underground economy is considerably higher than other similar countries, with this thriving economy making assets that are not known by the central government or national financial institutions, being distributed where nobody knows how they will be used. This is directly related to the integrity of the state financial system and its operation.
The use of CBDC and digital assets will gradually and naturally eliminate the problems caused by such a dangerous underground economy, and the pain points of the current financial system.
South Korea, dubbed as the future blockchain and crypto empire, ironically has a government that is being very lazy to catch up with global society. Something needs to change.