There is only a little variation in the crypto community’s opinion about regulators. They believe if the policymaker is able to receive the value proposition of bitcoin and cryptocurrencies and if they can understand and welcome blockchain technology’s prospects for improving the financial system then they are in a safe position as the company will shower them with accolades. If not, then they are not that lucky. This week’s column is focusing on the consequences of a crypto-friendly speech by Randal Quarles, The Federal Reserve’s Vice chair for Supervision.
His recent speech has made the cryptocurrency community shaken to its core. The Federal Reserve’s Vice chair for supervision is being appreciated by the crypto pundits and his speech is being termed as a manifesto which shows how the U.S government could control the power of cryptocurrency innovation for its personal gain such as serving the international interests while concentrating on establishing an even wider “soft power” role for the dollar in the global economy. What struck their attention the most was Quarles argument about stable coins. According to him “this could encourage [international] use of the dollar by making cross-border payments faster and cheaper, and it could potentially could be deployed much faster and with fewer downsides,” he said. All in comparison than a central bank digital currency (CBDC).
All of this was words of wisdom for many but supporters of stable coins believe that an accommodative U.S regulatory posture toward private issuers of these dollar-pegged tokens are for typically built open-source platforms such as Ethereum which allows superior digital dollar innovation in comparison to a formal CBDC. According to Castle Island Ventures partner Nic Carter and Dante Disparte chief strategy officer of circle, Quarles remarks will be remembered as a landmark speech. But its not all sure whether or not Quarles views are highly appreciated at the Fed. As the Boson Fed President Eric Rosengren issued a warning and stated stable coins as “New disruptors” and also said that they posed as a threat to financial stability.
Even after all this if U.S was planning on following Quarles words and his advice as it could mean that instead of the dollar losing its world reserve currency standard as some scholars of monetary and geopolitical trends anticipated, it could maybe expand its influence which based on the reports by newsletter is something MicroStrategy CEO Michael Saylor recently predicted. Which in turn would help dollar to go beyond its current status as the unit of account for global trade and a key reserve asset for capital markets and also become widespread outside of the U.S in everyday transactions. Therefore, if one tried to understand it will show that the reduction of hardline surveillance and wall street guarding will at the end help in boosting the monetary innovation and also in the betterment of financial inclusion.
One of the most important facts in his speech were about letting private stable coin issuers to drive the digital dollar’s development. He believes that America’s century long enthusiasm for novelty which according to him has made America the home for many of so many scientific and practical innovations which will later be called as transformed life in the 21st century from that of the 19th. Open blockchain platforms will provide space for more innovations than closed-door CBDC’s which are developed by central banks which are scarcely known as the breeding ground for innovations. There is a reason why there is breakneck innovation in decentralized finance (DeFi) its due to the factor that it is a permissionless environment. Which basically means developers don’t need to hang around for the permission of a corporate board to build on a particular platform. Also, they can freely move assets around within the DeFi ecosystem.
Recently, there was a bill presented to the U.S House of Representatives in December which would require stable coin issuers to apply for bank charters. At the meantime, all of this will may provide a price worth paying if the regulation is actually trying to truly help protect financial stability but too much regulation would probably prevent regular people from making fast and easy dollar-based payments around the world. Stable coin can be known due to their bearer instrument character. They are known as a digital version of cash whose value is self-contained and is able to be automatically transferred peer to peer. There are some specific rules which says if KYC and AML requirements are layered into those transaction, it would require an entity such as a bank to police them and afterwards the transaction loses would be considered a person-to-person feature. So primarily, stable coins will most likely pursue the current banking system, where the cross-border payments remain expensive and unmanageable for billions of people who are kept out, but most importantly from the developing world.