Prelude to the global crypto-currency race

By
Blaise from Nyctale

The US dollar has been the incontestable global reserve currency of our modern economy since the World War II. USA has done a great job defending its global reserve status by weaponizing its fiat currency. But the status quo seems to be progressively evolving.

The economic instability of our changing world is putting more pressure than ever on the international monetary policies from major central banks. In parallel, Bitcoin is progressively emerging as a potential major hedge and safe-haven digital currency. The scenario of a worldwide recession bringing Bitcoin and crypto-assets in the spotlight might be real, and we may observe in the next few years a major wealth’s flow to these new types of digital asset, with Bitcoin leading the race.

As this scenario is progressively becoming foreseeable, massive opportunities are emerging through this economical paradigm shift. Capitalism is slowly understanding the disruptive potential of crypto-assets, but the race has still nearly begun. While Bitcoin is acquiring the digital gold status, there are still many other paths to create new kind of assets and currencies dedicated to our future digital economy.

Current economic giants like GAFA are clearly aware of the situation. Some are already investing in stable coins, this type of crypto-currency that have their value pegged to another asset, be it fiat currencies, precious metals or a combination of different assets. It aims at solving the price volatility concern by providing a stabilization mechanism for the coin value, and then offer the needed predictability to generate mass adoption.

Stable coins have gained steam in the last few months, with JP Morgan and Facebook separately announced to create their own coins using private and permissioned blockchain to address the expensive and inefficient process of settlement. But there are currently more than 50 other existing stable coins, and more than one hundred in development!

Stable coin projects overview

This situation is naturally raising the interest of major digital companies, notably Facebook and Telegram. Facebook is willing to launch a new payments network called Libra. Its stable coin will be backed by a basket of government currencies, and the company is seeking for one hundred partners for this project, including payment networks Visa and Mastercard.

Overview of Libra network potential partners

Through Libra, Facebook aims at creating the first global digital currency. It’s hoping Libra will become simpler to set up, more ubiquitous as a payment method, more efficient with fewer fees, more accessible to the unbanked, more flexible thanks to developers and more long-lasting through the usage of blockchain technologies.

In response to the project, the US House Democrats have requested Facebook to halt the development of Libra, until Congress and regulators have time to investigate the possible risks it poses to the global financial system. “If products and services like these are left improperly regulated and without sufficient oversight, they could pose systemic risks that endanger U.S. and global financial stability.” Indeed, latest hearings on US Senate and Congress are showing a high reluctance from US government to Libra network.

On the other hand, the global messaging app Telegram is also working on its own payment network, called Telegram Open Network (TON). It goes further with an ambitious blockchain meant to decentralize multiple facets of digital communication, ranging from file sharing to browsing transactions. The company has currently more than 200 million active users and has raised around $1.7 billion for both Telegram and its TON platform in 2018.

Looking to these trends, central banks are forced to react. In April 2019, the International Monetary Fund (IMF) and the World Bank have jointly launched a private blockchain and a pilot crypto-currency. Their “Learning Coin” was launched in order to better understand the technologies that underlie crypto-assets. As the development of crypto-assets and distributed ledger technology is evolving rapidly, central banks, regulators and financial institutions need to fill the gap between the legislators, policymakers, economists and the technology.

The World Bank and IMF reportedly might use blockchain to launch smart contracts, combat money laundering and enhance the overall level of transparency. Earlier in April, IMF managing director Christine Lagarde said that blockchain innovators are shaking up the traditional financial world and have a clear impact on incumbent players. She also noted that the potential of blockchain-based technologies and assets is embraced by regulators and central banks, who recognize its positive effect.

In its latest report entitled “Five Facts on Fintech,” the International Monetary Fund (IMF) said that based on its research, countries generally foresee the emergence of crypto-assets backed by central banks. The study, which surveyed central banks, finance ministries, and other government agencies in 189 countries, explicitly stated that central bank-backed crypto-assets are likely to emerge due to lowering costs and increasing efficiency.

The anticipation of the emergence of central bank-backed crypto-currencies indicates that governments do consider crypto-assets as potential competitors, which could be considered as a sign of rapid adoption and growth for the asset class. The G20 is moving towards efficient crypto regulation with the request of the Financial Action Task Force (FATF), which has encouraged governments to more strictly regulate the crypto exchange market by tightening policies for exchanges.

As the leaders of European Union have decided to position the former Managing Director of the International Monetary Fund (IMF) Christine Lagarde as European Central Bank’s President, it seems clear that the global crypto-currency race is going to be considered very seriously, even if the USA is trying to avoid Libra network to be finalized.

Sources:

[1] Project Libra: Facebook to launch Stable coin-based payments network ; The Block

[2] Facebook announces Libra cryptocurrency: All you need to know ; TechCrunch

[3] House lawmakers officially ask Facebook to put Libra cryptocurrency project on hold ; The Verge

[4] Telegram’s TON Blockchain is live in private testing mode, shows high speed: Report ; Cointelegraph

[5] 2019 Stable coin Review ; Altcoin Magazine

[6] Stable coins, Explained ; Cointelegraph

[7] IMF and Wolrd Bank Launch Qausi-Cryptocurrency in Exploration of Blockchain Tech ; Cointelegraph

[8] IMF General Manager: Crypto is Shaking the System, We Don’t Want That ; NewsBTC

[9] IMF Says Central Bank-Backed Crypto ‘Could Become Reality’ ; CCN

[10] Pro-Crypto IMF Director emerges as potential candidate for President ECB ; Cryptopolitan