Issuance and circulation of yuan-backed stablecoins within the Chinese mainland are infeasible; Hong Kong presents a useful proving offshore market, said the experts.
The principal claimed benefit of stablecoins versus CBDCs related to censorship resistance. This has already been proven to not be a viable claim with for instance the blocking of wallets by Tether at the request of regulators. Integration of mandatory KYC / AML further diminishes this aspect of claimed advantage. So we are left with “speed” and “cost”. A number of technology solutions perform just as well as stablecoins, so one wonders where the advantage will in the end be. In China’s case a programmable CBDC will have more or less the same performance properties as stablecoins. The U.S. has taken the stablcoins path largely as a reaction to ruling out CBDCs.
Stablecoins are derivatives of fiat currencies. They are only as good as the fiat currency base. Maintaining a $-for-$ peg becomes the issue in this context. Further, stablecoins don’t add system liquidity per se; a dollar of stablecoin in circulation requires a dollar of fiat currency out of circulation. Further, those providing the security (the reserves) need to have their opportunity cost paid for. This adds an operating cost to the system; that is, the time value of money of the USD held in reserve must be paid for.
There’s no such thing as a free lunch when it comes to non-fiat currencies being used as (dormant) collateral.
For a detailed examination of the issues feel free to consult my essay on the matter: https://open.substack.com/pub/warwickpowell/p/a-crypto-turn-to-save-the-us-dollar?r=1p62fw&utm_medium=ios
The principal claimed benefit of stablecoins versus CBDCs related to censorship resistance. This has already been proven to not be a viable claim with for instance the blocking of wallets by Tether at the request of regulators. Integration of mandatory KYC / AML further diminishes this aspect of claimed advantage. So we are left with “speed” and “cost”. A number of technology solutions perform just as well as stablecoins, so one wonders where the advantage will in the end be. In China’s case a programmable CBDC will have more or less the same performance properties as stablecoins. The U.S. has taken the stablcoins path largely as a reaction to ruling out CBDCs.
Stablecoins are derivatives of fiat currencies. They are only as good as the fiat currency base. Maintaining a $-for-$ peg becomes the issue in this context. Further, stablecoins don’t add system liquidity per se; a dollar of stablecoin in circulation requires a dollar of fiat currency out of circulation. Further, those providing the security (the reserves) need to have their opportunity cost paid for. This adds an operating cost to the system; that is, the time value of money of the USD held in reserve must be paid for.
There’s no such thing as a free lunch when it comes to non-fiat currencies being used as (dormant) collateral.