Commercial Banks worldwide play a most difficult game of pushing innovation to stay competitive, while trying to predict regulatory policy – and stable coins are no exception to this scenario.
The benefit for stable coins are multi-layered, and often deceptive – starting at the practical objective of increasing bank deposits and more predictable liquidity (to which Licensed Banks can apply their Fractional Reserve Banking rights) due to the fact that customers that enter stable coins are less likely to exit them as the utility inherent in the stable coin itself provides for spending capacity without the need to withdraw FIAT.
However, on deeper examination, two further major incentives emerge for commercial banks to enter the stable coin space…
The interest in Central Bank Digital Currencies and their promise to empower Central Banks / Regulators has ballooned in 2019 – and astute Commercial Banks have realised that any real-world implementation of CBDC requires Coin, Note and Commercial Bank Money On- and Off-ramps for retail users to engage – and that Central Banks do not have the capacity for Customer Support, KYC and the like.
This presents a unique opportunity for Commercial Banks that have invested in their own stable coin infrastructure to compete for privileged partner status with the Central Bank in the research, discovery and pilot phases of potential CBDC (and the inevitable evolution of Net Interbank Settlements) in a region. Such a partner status also promises to provide a chance to influence emerging CBDC policy in partnership with the Central Bank, including how this may or may not compete with Commercial Bank money in the retail and commercial markets – a topic that should be of great interest to the future of Commercial Banking as a whole.
Stable coins create a new space of regulatory simplicity – allowing the separation of deposit taking and cash transacting from the practices of trading and investment – something that has always logically been joined at the hip. Tokenised trading allows for the creation of new markets – ranging from P2P trading, tokenising global markets, gold or other safe haven backed instruments, as well as breaking ground on green or impact focussed investments, synthetic derivatives, and even revolutionising the way retail products like diaspora and cross border payments are effected (often times providing the regulator even better oversight with more detailed compliance to Balance of Payment reports and Exchange Control requirements) – including attracting more foreign investment to the aforementioned.
Without question, each region’s regulatory landscape has unique nuances that require a careful and considered approach for commercial bank stable coin programs with a view towards ensuring Central Bank support. In order for XAR Network to best serve Central and Commercial Banks, we ensure that we establish in-market teams and partner with at least one top tier commercial bank to deploy our Enterprise ecosystems.
We firmly believe that it is through joint engagements like these that complexities of market evolution, regulatory compliance and blockchain innovation can be harnessed effectively and lead to the financial products that could one day revolutionise global financial markets.