Stablecoins To Challenge Banks And Drive Down Payment Costs

It’s been just revealed that there’s a member of the Board of Governors of the Federal Reserve System who is sharing his thoughts on the advantages of using private stablecoins over central bank digital currencies.

During a speech, Governor Christopher J. Waller is analyzing the benefits of using a privatized digital currency in place of a CBDC.

He said that the concept of a CBDC is “a solution in search of a problem.”

He also pointed out the fact that a privatized digital dollar could be more effective than a CBDC in a number of ways.

“It seems to me, however, that private-sector innovations might reduce the markup charged by banks more effectively than a CBDC would. If commercial banks are earning rents from their market power, then there is a profit opportunity for nonbanks to enter the payment business and provide the general public with cheaper payment services. And, indeed, we are currently seeing a surge of nonbanks getting into payments.”

Benefits of stablecoins

He also made sure to address the benefits of stablecoins and how they could potentially minimize markup prices for payment services.

“For example, in recent years, ‘stablecoin’ arrangements have emerged as a particularly important type of nonbank entrant into the payments landscape. Stablecoins are digital assets whose value is tied to one or more other assets, such as a sovereign currency. A stablecoin could serve as an attractive payment instrument if it is pegged one-to-one to the dollar and is backed by a safe and liquid pool of assets,” he said.

He highlighted the fact that commercial banks and stablecoins that are pegged to the US dollar are acting as conduits for US monetary policy and they are amplifying policy actions.

He concluded by saying that private stablecoins pegged to the US dollar are broadening the reach of US monetary policy rather than diminish it.

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