Institutional interest in crypto is growing, confirmed by a Goldman Sachs survey, which found that 40% of the firm’s high net worth clients were already exposed to cryptocurrencies. Stablecoins – which offer a more secure and stable option in the crypto space – have seen hyper-growth, reaching a market cap of $ 119 billion. The volatility of crypto has drawn more conservative investors to asset-backed stablecoins.
Stablecoins are a form of private currency. As Christina Segal-Knowles, executive director of financial market infrastructure at the Bank of England, points out, modern currency is a combination of public and private funds, of which up to 95% in developed economies is private.
She adds, “If new forms of digital money can be secure, they could potentially contribute to faster, cheaper and more efficient payments with greater functionality. They could increase the resilience of payments. And they might even have long-term benefits for financial stability. “
True stable coins, which are interest-free coins designed to have a firm value against a benchmark currency or asset, have an important role in the future of global finance. They offer low cost, secure and real-time payments. This makes accepting payments cheaper and easier for governments to run conditional cash transfer programs while reducing the cost of remittances and connecting the unbanked to the financial system.
We grew up with the gold standard; it makes sense to create new financial instruments backed by gold and other real-world assets that protect value and allow people to borrow against their assets. The global monetary system as we know it isn’t that old – it’s only been 75 years since Bretton Woods.
Only 50 years ago, however, President Richard Nixon announced that the US dollar would no longer be backed by gold as it had been since Bretton Woods. Now this system is under threat, not only by governments printing money as if there is no tomorrow and the resurgence of inflation, but also by stablecoins.
In particular, Facebook’s announcement of the Libra project in 2019 made regulators realize its potential to go global and access billions of users through its social media platform. China is exploring cross-border payments as part of its digital yuan development, which could expand to more than 50 lower-middle-income countries that are part of the Belt and Road Initiative. These countries are home to the majority of the world’s population. The deployment of the digital yuan could potentially dethrone the US dollar as the backbone of the global financial system.
Stablecoins and emerging economies
In contrast, the positive potential value of stablecoins lies in emerging economies and for threatened populations. Think of the people who see the value of their hard-earned savings erode or the citizens of countries like Venezuela and Lebanon who see their currencies plunge. Think about how the global COVID-19 pandemic revealed the urgent need for direct, low-cost digital transfers.
In a recent article, Katherine Foster and other researchers pointed out that stablecoins have the potential to facilitate secure and convenient transactions without volatility at a lower cost than mobile money held in a wide variety of non-bank wallets. . This positive value is badly needed as global remittances, a vital financial flow for development, plummeted during the pandemic due to job losses for migrant workers. Remittances saw their biggest drop in recent history, dropping nearly 20% from $ 554 billion in 2019 to around $ 445 billion in 2020.
The humanitarian community also sees the potential and has pushed the boundaries of blockchain technology to improve the effectiveness and efficiency of its interventions. Ric Shreves, Director of Emerging Technologies at Mercy Corps, sees stablecoins as a compelling use case: “Imagine if we had a low cost, low volatility coin that would be globally acceptable. How could this impact our work? This could impact our work from everything from back office operations, moving money to difficult places, to making direct distributions, to our program participants, there are a number of instances of really compelling use for this technology.
Developing countries are already embracing crypto. The top 10 countries with cryptocurrency users around the world are Kenya, Nigeria, South Africa, Venezuela, Colombia, and Vietnam. The latest crypto report from Finder, a financial product comparison website, also reports that emerging economies like Vietnam, India and Indonesia are leading the race in crypto adoption. The tendency of consumers in emerging markets in Latin America, Africa and East Asia to turn to crypto may preserve savings they might otherwise lose due to economic turmoil.