Stablecoins Are the Bridge From Central Banks to Consumer Payments
(Source: coindesk.com)

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(Original link: coindesk.com)

Stablecoins Are the Bridge From Central Banks to Consumer Payments May 30, 2020 at 13:00 UTC opinion Alexander Lipton Stablecoins Are the Bridge From Central Banks to Consumer Payments Alexander Lipton is the CTO of Sila, a visiting professor and Dean’s Fellow at the Jerusalem Business School of the Hebrew University of Jerusalem, and a Connection Science Fellow at the Massachusetts Institute of Technology. As many still wait to receive the check from the Paycheck Protection Program and Health Care Enhancement Act , which is set to distribute $484 billion in an effort to boost the U.S. economy, it brings to the forefront the question of why central banks have still not created a true digital alternative to cash. When completed, the Economic Impact Payment program will distribute 150 million payments. Eighty million people who received their 2018 or 2019 tax refund by direct deposit will receive direct deposits. The rest will primarily be paid using paper bank checks. As of May 6, 2020, there was $1.87 trillion worth of Federal Reserve notes in circulation, which accounts for 5%-10% of all U.S. currency in circulation, with the remaining 90% sitting in financial institutions or electronic accounts. Just under half of the stimulus payments are sent via paper check, which incurs additional cost to the government and recipients (especially the unbanked, who will face exorbitant fees). This alone shows how misaligned the current banking infrastructure is in the U.S. with the reality of how money circulates today. Financial systems as we know them are on their last legs due to persistent negative or barely positive interest rates. Open access internet protocols have unleashed a wave of creativity and growth in finance and beyond, but banking is not one of them. The reason stems mostly from the fact that successful open-access protocols for money and identity, while sorely needed, are conspicuously absent at present. A regulatory-compliant, fiat-backed tokenized medium of exchange can help to fill this gap. While bitcoin has led the charge for a new vision of cryptocurrencies, the emergence of stablecoins is possibly more critical by way of filling this gap. My co-founder at Sila , Shamir Karkal, gave his opinion on the role FedNow will have in modernizing U.S. payment systems, but FedNow is still five years away and focuses on updating an ACH [automated clearinghouse] system that has barely been improved upon since 1972.
The move towards fully digital currencies brings much-needed efficiency to U.S. payment systems, which could unleash a new wave of innovation in finance and beyond. What is more troubling is the prevailing macroeconomic framework, which authorities use to guide macroeconomic activity, is based on outdated paradigms. Standard models that are supposed to govern money creation and interest rates, for example, still treat private banks as pure intermediaries, ignoring the fact that they are big, active, money-creating elements unto themselves. The fact that banks have their self-centered motivations and profit-making strategies injects significant additional complexity into the system. Although the potential for sweeping change is sparking fervent innovation, many obstacles remain. How these digital networks get built and used are critical factors in ensuring they promote equity and accountability. New financial networks, and CBDCs in particular, could enable extreme levels of centralized control if not handled with care. See also: Ajit Tripahti – 4 Reasons Central Banks Should Launch Retail Digital Currencies New technologies for blockchain-based distributed ledgers are making it possible to create digital currencies far more efficient than the analog/digital U.S. dollar and purely digital bitcoin. As stablecoin projects seeking to disrupt payments such as libra have enjoyed broad media coverage, they are also increasingly scrutinized by regulatory authorities. As the term “stablecoin” gained popularity in finance, its meaning has blurred. From a technology-agnostic perspective, I’ve concluded what a stablecoin is really is: should not be a form of currency should be usable without any direct interaction with the issuer should be tradable on a secondary market and have low price volatility in terms of a target quote currency Jointly with my MIT colleagues, Prof. Alex (Sandy) Pentland and Dr. Thomas Hardjono, we had proposed the idea of a Digital Trade Coin (DTC) back in 2017. DTCs combine the best features of both cash and digital currencies and are mostly immune to policies of the central banks that control the world’s reserve currencies. In the process of creating DTCs, the administrator will be in charge of real assets, sponsors will own fiat currency and the general public will own DTCs, which are always convertible into fiat at the current market price. If that sounds familiar to libra – its similarities to our 2018 paper proposing a Digital Trade Coin may not be a coincidence. Digital dollar ...