What are stablecoins?
The report defines stablecoins as follows:
"Stablecoins have many of the features of cryptoassets but seek to stabilise the price of the “coin” by linking its value to that of a pool of assets."
Previously, I had noted that the US could possibly use stablecoins, such as Facebook's Libre, to support its foreign policy against China. In the post I noted that:
"The US government could leverage Facebook's offering. As noted in Paul Vigna's and Michael Casey's Age of Cryptocurrency:
"Things really get interesting when the U.S. government issues a digital dollar. The dollar is already the world’s primary reserve and commercial currency, but this would give it an even bigger edge. That’s because people in countries whose currencies aren’t trusted or who are barred or restricted from buying foreign currencies—think China, Argentina, Russia—could now easily obtain the one currency that has long symbolized international stability. Whereas the international movement of paper dollars can be (somewhat) controlled with physical checks at border crossings and regulation of bank transfers, digital dollars would be far more footloose. They would invade other jurisdictions’ currency zones. If citizens of other countries can easily acquire dollars—by far the most sought-after currency in the world—and use them to buy almost anything, why would they need renminbi or pesos or rubles? In this scenario, other currencies become less sought after, the dollar more powerful. It is the ultimate expression of U.S. hegemony, and, for other governments, undermines their nation-state sovereignty."
In other words, China, China, China.
That is, Facebook's deployment of the cryptocurrency gives the US government plausible deniability that the US is working to undermine the Chinese from a currency perspective. As I noted in this post, I cited the Wall Street Journal in explaining China's concern regarding cryptocurrency.
"Virtual currencies in theory allow holders to bypass China’s traditional banking system to move money outside its capital-controlled borders. That could make it more difficult for Chinese regulators to maintain a tight grip on the yuan."
The G7 report in another evidence to support this hypothesis as China is not included in the working group, despite the fact it is a leader in mobile payment technology.
That being said, the bigger takeaway from the report is that the Big Banks seem to be sensing how Facebook and other Big Tech Companies (Annex B of the report analyzes the capabilities of Facebook, Amazon and others to transmit payments) could be encroaching on their turf. What Annex B doesn't mention, is that "the largest corporate stockpiles are all in the tech sector: the top five hold a collective $601 billion."
Tech companies in Canada, like Rogers, have already been granted a banking license. In other words, it is a matter of legislators pen to grant such licenses to big tech, who can turn the billions in cash into trillions of loans through fractional reserve banking.
Finally, we should always keep in mind that the rentier economy is more lucrative than actually making products or delivering services. Perhaps the biggest illustration of this is how Sony makes 63% of its operating profits from finance with “[l]ife insurance has been its biggest moneymaker over the last decade, earning the company 933 billion yen ($9.07 billion)”.
Where are the Big Banks especially vulnerable?
In the report, the Working Group notes that "cross-border payments remain slow, expensive and opaque, especially for retail payments such as remittances. Moreover, there are 1.7 billion people globally who are unbanked or underserved with respect to financial services" and more specifically "Recent stablecoin initiatives have highlighted these shortcomings and emphasised the importance of improving the access to financial services and cross-border retail payments. In principle, retail stablecoins could enable a wide range of payments and serve as a gateway to other financial services. In doing so, they could replicate the role of transaction accounts, which are a stepping stone to broader financial inclusion. Stablecoin initiatives also have the potential to increase competition by challenging the market dominance of incumbent financial institutions." [Emphasis Added]
What about regulation?
Regulation is inescapable, but not an insurmountable task. That being said, the emphasis in the report on the need for regulation needs to be viewed with a bit of skepticism when it comes to competition. Andrew Hilton, director of the Centre for the Study of Financial Innovation, told that Guardian that "Big banks like regulation. Regulation is a fixed cost, so the bigger you are, the more clout you have to amortise [spread] it over. It favours the big over the small, and is another row of bricks in the wall that keeps competition out."
Furthermore, when HSBC skirted AML regulation they got a $1.9 billion fine, but that works out to be 5 weeks worth of profit.
What about bitcoin?
The report does attack bitcoin as well noting that:
"The first wave of cryptoassets, of which Bitcoin is the best known, have so far failed to provide a reliable and attractive means of payment or store of value. They have suffered from highly volatile prices, limits to scalability, complicated user interfaces and issues in governance and regulation, among other challenges. Thus, cryptoassets have served more as a highly speculative asset class for certain investors and those engaged in illicit activities rather than as a means to make payments."
Although they are a key proponent of the status quo, there is some truth to this claim. The average small-business owner cannot deal with such volatility when it comes to a medium of exchange.
Even proponents of Bitcoin, such as Andreas Antonopoulos, readily admit that the currency is in a bubble. But he also points out that it is a mechanism for people to control the currency instead of corporations or governments. (As noted in this post, he dismisses Facebook's foray into cryptocurrency)
Antonopoulos hits on a greater truth: whether Big Tech wins or the Big Bank continue their reign, the consumer ultimately loses. Alphabet Inc. (aka Google), who dropped its motto "do no evil", has been accused of destroying its competitors through their monopoly power. For example, Foundem (a price comparison site) accused Google of demoting its result because it is a competitor. That being said, there will be some gains that will accrue to the consumers until one emerges dominant.
Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else
Tech companies in Canada, like Rogers, have already been granted a banking license. In other words, it is a matter of legislators pen to grant such licenses to big tech, who can turn the billions in cash into trillions of loans through fractional reserve banking.
Finally, we should always keep in mind that the rentier economy is more lucrative than actually making products or delivering services. Perhaps the biggest illustration of this is how Sony makes 63% of its operating profits from finance with “[l]ife insurance has been its biggest moneymaker over the last decade, earning the company 933 billion yen ($9.07 billion)”.
Where are the Big Banks especially vulnerable?
In the report, the Working Group notes that "cross-border payments remain slow, expensive and opaque, especially for retail payments such as remittances. Moreover, there are 1.7 billion people globally who are unbanked or underserved with respect to financial services" and more specifically "Recent stablecoin initiatives have highlighted these shortcomings and emphasised the importance of improving the access to financial services and cross-border retail payments. In principle, retail stablecoins could enable a wide range of payments and serve as a gateway to other financial services. In doing so, they could replicate the role of transaction accounts, which are a stepping stone to broader financial inclusion. Stablecoin initiatives also have the potential to increase competition by challenging the market dominance of incumbent financial institutions." [Emphasis Added]
What about regulation?
Regulation is inescapable, but not an insurmountable task. That being said, the emphasis in the report on the need for regulation needs to be viewed with a bit of skepticism when it comes to competition. Andrew Hilton, director of the Centre for the Study of Financial Innovation, told that Guardian that "Big banks like regulation. Regulation is a fixed cost, so the bigger you are, the more clout you have to amortise [spread] it over. It favours the big over the small, and is another row of bricks in the wall that keeps competition out."
Furthermore, when HSBC skirted AML regulation they got a $1.9 billion fine, but that works out to be 5 weeks worth of profit.
What about bitcoin?
The report does attack bitcoin as well noting that:
"The first wave of cryptoassets, of which Bitcoin is the best known, have so far failed to provide a reliable and attractive means of payment or store of value. They have suffered from highly volatile prices, limits to scalability, complicated user interfaces and issues in governance and regulation, among other challenges. Thus, cryptoassets have served more as a highly speculative asset class for certain investors and those engaged in illicit activities rather than as a means to make payments."
Although they are a key proponent of the status quo, there is some truth to this claim. The average small-business owner cannot deal with such volatility when it comes to a medium of exchange.
Even proponents of Bitcoin, such as Andreas Antonopoulos, readily admit that the currency is in a bubble. But he also points out that it is a mechanism for people to control the currency instead of corporations or governments. (As noted in this post, he dismisses Facebook's foray into cryptocurrency)
Antonopoulos hits on a greater truth: whether Big Tech wins or the Big Bank continue their reign, the consumer ultimately loses. Alphabet Inc. (aka Google), who dropped its motto "do no evil", has been accused of destroying its competitors through their monopoly power. For example, Foundem (a price comparison site) accused Google of demoting its result because it is a competitor. That being said, there will be some gains that will accrue to the consumers until one emerges dominant.
Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else
