The paper investigates the implications of “giving consumers the possibility of holding a bank account with the central bank directly”. The paper concludes with a series of stark warnings: To begin with, the availability of CBDC could hurt commercial banks as consumers would likely prefer holding their money in a central bank account than with commercial banks especially during times of crisis. With less deposits at hands, commercial banks would see their ability to lend suffer.
“During a panic, however, we show that the rigidity of the central bank’s contract with the investment banks has the capacity to deter runs. Thus, the central bank is more stable than the commercial banking sector,” the report states. “Depositors internalize this feature ex-ante, and the central bank arises as a deposit monopolist, attracting all deposits away from the commercial banking sector. This monopoly power eliminates the forces that induce the central bank from delivering the socially optimal amount of maturity transformation,” the report concludes.
Additionally the report warns if CBDC did disrupt the role of commercial banks and allowed the borrowing of more money than is lent out, the consequences could harm to the money markets.
“Our equivalence result has a sinister counterpart. If the competition from commercial banks is impaired (for example, through some fiscal subsidization of central bank deposits), the central bank has to be careful in its choices to avoid creating havoc with maturity transformation,” the paper reads.
What About Stable Coins?
As shown above, the jury is still out on the future of CBDC. Internal and external macro-economic forces may drive early adopters like Italy to go full steam ahead and launch a CBDC sooner rather than later. Other countries may choose to wait for the US Federal Reserve Bank to move first and/or learn important lessons from early experiments.
Meanwhile, as of last year, according to a report by BlockData, there were already 66 stable coins live with a further 134 under development. For over half of the active tokens, 36 of them, it took around one year from announcement to go live. Many of these coins are pegged to fiat currencies providing businesses with an option to hold and use digitised currencies such as USD, GBP, EUR, CHF, JPY, HKD, AUD, NGN to name a few. Since the launch of USDT on the Bitcoin Omni protocol in 2017, stable coins like GUSD, USDC, TUSD, PAX have been issued on a growing number of blockchains including Ethereum, Stellar, Binance and Tron.
Thresh0ld currently supports all stable coins issued as BTC Omni, ETH ERC20, XLM, BNB or TRC 10/20 tokens. As you know, we’re always working on adding support for more blockchains such as ADA which became available since last week.
Interested in securing your company’s stable coins with one of the most advanced and cost-effective solution to-date?