The take-off of E-Yuan, China's digital currency, has dramatically increased US institutions' interest in the digital dollar
By The Forex Review - 21 / April / 22 507
Dominick Bell
The take-off of E-Yuan, China's digital currency, has dramatically increased US institutions' interest in the digital dollar. A few weeks ago, President Biden signed an executive order outlining a timeline in the research and development of a central bank digital currency (CBDC - Central Bank Digital Currency).
Democrats have launched a bill that would mandate the Treasury to develop digital cash that is as close to cash as possible for rapid nationwide adoption. Meanwhile, the private market continues to experiment with various digital dollar technology solutions. The stablecoins are digital currencies anchored with a fixed exchange rate to a fiat currency such as the dollar or the euro in order to allow conversion with Bitcoin and similar in instant terms. After a 24-month period of exponential market growth, the expansion slowed, allowing in each case a doubling of the capitalization of the seven major currencies in circulation from $ 90 billion to $ 180 billion. To date, stablecoins are mainly used to facilitate the trading and lending of cryptocurrencies through digital exchange platforms, decentralized or not.
Compared to a year ago, the traditional monopolist Tether, which was the only stablecoin on the market for four years, is in evident decline. In March 2022, for the first time ever, Tether's capitalization represented less than 50% of the market.
From 2021 at the request of the New York Attorney General, Tether is finally obliged to provide a quarterly report on its reservations, verified by the independent auditor Mha Kayman. It is a significant step forward in transparency compared to the total opacity of operation of the past.
The latest report shows that 78.65 billion dollars of Tether in circulation as of 31/12/2021 were covered by 34.52 billion US Treasuries (UsT), four billion cash and 24 billion fiduciary deposits and commercial credits. with an average duration of three months (cash equivalents) to unspecified companies with an average rating of A-2.
In the meantime, significant commercial initiatives are growing to integrate stablecoins with the traditional payment system and this explains the growing interest of regulators in increasing their security and transparency.
The main contender, with strong growth, is the stablecoin UsdcC, issued by a consortium of financial intermediaries, among which the credit card giant Visa and the largest exchange in the world Coinbase stand out.
USDC presents itself with a regulatory-friendly image: convertibility with the dollar is guaranteed, the company operates with authorization from the Department of Financial Services of the State of New York; the reserves are 100% represented by UsT and cash and subject to monthly auditing by the independent company Grant Thornton Lllp.
Usdc said it was ready to apply for a banking license if regulation, in the US as elsewhere, becomes more stringent. From 2021, Visa allows transactions to be settled through USDC on its technological platforms.
There are signs of private sector convergence towards a digital dollar that could have global significance. Public institutions have to hurry or they will face a new status quo.
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