One of the most interesting and controversial solutions emerging from blockchain technology is the concept of the so-called "stablecoin." Simply put, a stablecoin is a token that ultimately reflects the current value of a chosen fiat currency, most often the dollar, in a 1:1 ratio. Although tokens such as USDT and USDC have been present in the cryptocurrency market for years and have built an impressive reputation over the years, as is typical in the Web3 space, it cannot be without controversy. Suffice it to say that USDT, the world's most popular stablecoin, with a current market capitalization of $83.3 billion, has never undergone a thorough audit process. On March 31st, Tether Holdings Limited (the company responsible for USDT) published an "independent auditors' report" purporting to confirm the amount of reserves backing the 79.4 billion USDT issued (to date). Unfortunately, the authors of the audit from BDO Italia clearly state that "they did not perform any procedures and do not provide any assurances at any time in this report." It is worth noting that just before its collapse, the stablecoin TerraUSD (UST) reached a market capitalization of $16 billion. The FTX exchange, from which billions of investor dollars evaporated, was valued at $32 billion according to the last investment round on January 31, 2022. Both of these events seriously impacted not only the state of the crypto world. Their effects can also be found in the "classic" market. The peak value of the FTX exchange and the capitalization of the UST token combined is still only a fraction of the value of currently issued USDT tokens. Any NewConnect company must annually comply with significantly more stringent reporting obligations than USDT has ever experienced, under penalty of significant administrative sanctions.
Jerome Powell, Chairman of the Federal Reserve System (the central bank of the United States), during his testimony before the House of Representatives Committee on Financial Services regarding the ongoing work on federal legislation regulating the cryptocurrency market in the United States (the first detailed information on the solutions is expected to appear in July of this year), clearly stated that the central bank should have strict control over regulations developed in connection with stablecoins. On the other side of the Atlantic, the European Union, which seems to be striving to become the world's regulatory hub, is adopting the MiCa regulation, with a planned effective date of December 2024. MiCa covers, among other things, stablecoins, imposing significant requirements regarding capital reserves, asset management, and risk control, especially for "significant" stablecoins, which certainly include the most well-known ones.
The development of blockchain technology and the increasing digitization of the economy have undoubtedly fueled the development of the so-called "Central Bank Digital Currency" (CBDC). What are the benefits of developing virtual currencies? Virtual currencies of individual central banks could certainly address the clear need for a digital payment method, currently being met by the ever-popular stablecoins. Among the experts' statements regarding the advantages of such a solution, the common denominators are lower transaction costs, greater competitiveness in the banking and payment services market, and the simplification and standardization of digital payments.
According to the annual survey conducted by the Bank for International Settlements (BIS) in 2020, only 10% of the 66 central banks surveyed (21 from developed countries and 45 from emerging markets), 30% indicated that such a venture was on their agenda, and a total of 10% of banks were already conducting pilot projects, while the remaining 70% of respondents considered this unlikely. According to the latest reports, 130 countries representing 98% of global gross domestic product are currently exploring this option (detailed information can be tracked at https://www.atlanticcouncil.org/cbdctracker/ ). Among the most significant global economies interested in this solution are:
- China was one of the first to launch a pilot project for a virtual currency, in this case the digital yuan, which debuted in 2021.
- United States — In March 2023, President Joe Biden issued a directive requiring an assessment of the benefits and risks of CBDC
- United Arab Emirates – Plan to introduce a pilot version of the digital dirham in 2024.
- Japan — On May 29, 2023, the central bank of the cherry blossom country published the results related to the second phase of the so-called "Proof of Concept" tests.
What does the situation look like in the eurozone? As recently as June 28, 2023, the European Commission published its legislative plans for the digital euro. The eurozone's CBDC is intended to be another means of payment, a kind of alternative to cash and traditional banking. Although some groups have raised concerns about the planned elimination of cash from circulation, there is currently no information on such plans. Interestingly, according to a press release published on the European Commission's website, the digital euro is intended to guarantee the possibility of online and offline payments. While online transactions are to guarantee the same level of privacy as currently available online banking and payment services, offline payments are to ensure a high level of privacy and data protection. The aforementioned press release explicitly states that offline payments are to be made directly between devices without internet access, with a level of privacy equivalent to cash payments.
their statement, European Commission Vice-President Valdis Dombrovskis and European Central Bank Executive Board Member Fabio Panetta assure consumers that using the digital euro will be free and easy. They also place particular emphasis on privacy and data protection. The European Central Bank is allegedly not to receive personal data or information about payment schemes. As Mr. Dombrovskis and Mr. Panetta jointly point out, "currently two-thirds of digital retail payments are processed by a few global companies," and the digital euro is supposed to have "strategic advantages." The aforementioned statement clearly indicates that, given the development of digital currencies in other countries, Europe cannot be left behind, as competition from other digital currencies, including the largest stablecoins, could significantly impact the euro's attractiveness. A European CBDC based on local solutions is intended to ensure the security of payment infrastructure, especially in the face of geopolitical tensions. Growing cybersecurity threats and threats related to the liquidity of energy supplies are particularly highlighted. Due to the ongoing digitization, digital currency seems to be the next inevitable stage, and the lack of appropriate solutions is seen as a risk of capital outflows towards stablecoins and actual virtual currencies. The regulations proposed by the European Commission are intended to establish a framework facilitating the potential introduction of a digital euro. According to statement , it supports maintaining the current status of euro cash as legal tender. Current research on the digital euro concept is scheduled to continue until the fall, when the European Central Bank, through its Governing Council, will decide whether to proceed to the next design phase, which in this case would involve testing technical solutions, applications, and business assumptions.
Given the above, should we begin work on a CBDC domestically? To quote website : "The National Bank of Poland (NBP) is closely monitoring the progress of work on CBDC issuance globally so that, if necessary, it can also take appropriate action in Poland," says Prof. Adam Glapiński, President of the National Bank of Poland. […] The rationale behind other central banks' initiation of pilot tests for CBDC issuance or digital money implementations is currently not reflected in Polish conditions. To date, the NBP has not identified a systemic purpose for issuing a digital zloty, nor specific needs of consumers or businesses that could not be met by payment service providers in Poland, but only by the central bank through the introduction of a CBDC. The results of the conducted analyses indicate a lack of clear benefits from the introduction of central bank digital money in Poland relative to the perceived risks associated with its issuance for the economy, monetary transactions, and the financial system."
This alert is for informational purposes only and does not constitute legal advice.
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