“Commercial banks are the issuers of most of what we now think of as money, that is, deposits in safe and highly regulated financial institutions,” says former policy officer Tony Richards. payments to the Reserve Bank of Australia.
“If stablecoins will be widely used as a form of currency in the future, there is every reason to believe that commercial banks could be significant issuers of these claims.”
Digital versions of money
Central banks are also working to create digital versions of money, known as central bank digital currencies (CBDCs), which could also enable cheaper and faster trading on blockchain systems, while by allowing governments to keep control of the money.
Alongside the new Cooperative Digital Finance Research Centre, the RBA plans to announce details of a pilot program soon to create an eAUD to experiment with new business models for a web3 economy.
The creation of stablecoins by banks is remarkable given how awful the past year has been for the broader cryptocurrency industry, culminating in the collapse of digital currency exchange FTX. There was also the failure of another stablecoin, terra-luna, which was backed not by fiat money but by volatile cryptocurrencies.
The lessons of the rout are emerging. The first is that it might be better for the financial system if stablecoins were offered by regulated and trusted banks, so that users could be sure that they were individually backed by money in an account. bank, guaranteed by the government.
Financial services aren’t the only industry slow to respond to tech tsunamis. In the world of music, record companies have observed that computers make it possible to burn CDs and share them on Internet networks. However, the industry finally realized it could offer customers a legitimate and safe way to download music, striking deals with Apple to open up a new streaming industry, allowing Sweden’s Spotify to emerge from the chaos of Pirate Bay. .
The Napster moment for banks arrived in June 2019, when Facebook has announced an ambitious project to create a stablecoin, Libra. The plan was to allow users of its WhatsApp or Messenger apps to send money for free and instantly, just like they send an SMS.
Ultimately, the project died due to Facebook’s inability to regain the trust of its huge privacy breaches in 2018 and as global regulators debated whether big tech companies should be trusted to create digital coins.
But since then, many other tech companies have sought to step into the breach, from big players like Circle and Tether, which mine the largest US dollar stablecoins, to thousands of smaller crypto players.
“There are new, specialized fintech companies that are already issuing stablecoins, mostly in US dollars, which are widely used in trading crypto assets,” says Dr. Richards, now chair of the Digital Finance CRC’s CBDC Steering Committee.
“Then there are the big tech companies that are household names – say Facebook or Google – that have large user bases and could potentially launch retail stablecoins that could scale very quickly.”
Part of driving the response from banks is the desire to participate in emerging markets for “tokenized” assets, extending beyond stablecoins and speculative crypto coins.
Hard assets such as commodities and even real estate are digitized to create liquidity in previously illiquid markets. The Boston Consulting Group said last year that the market for tokenized assets on blockchains could reach US$16 trillion ($22.9 trillion) by the end of this decade. Stable coins and central bank digital currencies are needed to facilitate this.
Strategic issue for banks
“There will be increasing tokenization of all kinds of assets to facilitate trading in these assets, both in traditional asset classes and new ones that are not tradable at this time,” Dr. Richards says. “Bringing liquidity to new asset classes will enable new investment products and new risk management opportunities.”
NAB and ANZ’s decision to mint stablecoins raises strategic questions for the other two big banks. Commonwealth Bank’s crypto strategy is uncertain after a rare strategic mistake last year under chief executive Matt Comyn. The bank then tried to facilitate retail client access to speculative cryptocurrencies through its banking app, a move that ASIC is now preventing given the volatility and the potential to expose clients to big losses. Whether CBA will go the stablecoin route remains to be seen.
Westpac, meanwhile, also minted a stablecoin last year as part of an internal pilot to prove the technology. But unlike NAB and ANZ, it hasn’t decided to market it.
As regulators and governments scramble to determine the most appropriate framework for banks – and non-banks – to create stablecoins, it is hoped that the NAB and ANZ movement will provide support for developers who are still licking their teeth. injuries after the difficulties of last year.
“The continued adoption of crypto technology by financial institutions like ANZ and now NAB has the potential to create significant efficiencies in the financial system, such as instant settlement, atomic swaps, smart contracts and other programmatic potentials,” says Jonathon Miller, CEO of Kraken, a cryptocurrency exchange.
“This is an explicit recognition of competitive advantage over traditional payment systems, and we expect this trend to continue. Inevitably, it will evolve to include the adoption of various other cryptocurrencies and tokens to increase use cases in the Australian economy.