Few product announcements have sparked such activity among governments around the world as the then-Facebook announcement, now Meta, the then-Libra announcement, now the Dead Diem announcement. The prospects of a private company with billions of users issuing money was too much for lawmakers. Suddenly, everyone was planning a supposed CBDC o Digital Currency of the Central Bank.
Now, in most of the modern world, we already have digital money, a fact often told to us by nocoiners. Just open your banking app and look at those numbers that represent ones and zeros of money on your screen. So what’s the deal with CBDCs? To be honest, I don’t know, except perhaps as a surveillance tool, if we would get rid of the physical bills in the process.
The problem of people using money not controlled by the government
What seems concerning to legislators and many others is the risk or opportunity, depending on their point of view, of people using money that is not under the control of the government, and they seem to have this idea that the reason why many people would prefer the new alternative is because they are easier and faster to use, and in some cases cryptocurrencies are. But not always.
Lawmakers’ thinking seems to go along the lines of “if people are going to use these new forms of money, and we essentially can’t prevent this from happening, then we have to come up with our own version of digital money.”
This reminds me of how Microsoft once discarded the Internet, then did a 180° turn and created the worst web browser the world had ever seen and tried to change web standards in the process. Fortunately, the open Internet held its own.
In the same way, I don’t think CBDCs are gmi, because no matter how I twist and turn, CBDCs are not going to have the same properties and characteristics as open, permissionless cryptocurrencies. If for some reason they did, CBDCs would essentially be the same ones we already have: stablecoins running on open, permissionless blockchains. An open protocol is simply better than any attempt to alter its openness.
The United States is far behind China in CBDC
Stepping back and looking at the geopolitical landscape, China is far ahead of the US in the race for a CBDC; they already have it. A digital dollar is a few years from now. All the US has managed to come up with so far is two reports, one coming out of the fedand the other of MIT in an agreement with the Boston Federal Reserve. Unless, of course, the definition of what a CBDC is or can be changes.
On Tuesday, February 15, Congressman Josh Gotthiemer (NJ-5) posted a discussion drought of the Stablecoin Protection and Innovation Act of 2022. According to the announcement, this would be “legislation focused on defining qualified stablecoins, separating qualified stablecoins from more volatile cryptocurrencies, and establishing adequate protections for consumers and investors.” Good Guy!
The proposed bill would allow both traditional banks and non-banks to issue “qualified stablecoins,” with the Office of the Comptroller of the Currency (OCC) ripping the guts out of any entity that doesn’t follow some intended guidelines for how These stablecoins must be 100% backed, either with cash, cash equivalents, or whatever is deemed strong enough. In addition, the proposed bill suggests that the Federal Deposit Insurance Corporation (FDIC) establish an insurance fund to protect non-bank issuers in case the monetary dregs spill over.
In the slightly more polite words of Congressman Gotthiemer, “The legislation gives the Office of the Comptroller of the Currency (OCC) primary supervisory authority over both types of stablecoin issuers. To help further protect consumers, the Federal Deposit Insurance Corporation (FDIC) will be required to develop a Qualified Stablecoin Insurance Fund to administer insurance of non-compliance issuers’ redemption payments. banks”.
“Qualified stablecoins” would be exempt from regulation as securities
Another key part of the language of the proposed bill is that the bill “does not restrict the issuance of other types of cryptocurrencies. The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are also not restricted from examining unrated stablecoins and other cryptocurrencies as potentially securities and derivatives.”
This means that rated stablecoins would be exempt from regulation as securities by the SEC or derivatives by the CFTC, and Goldman Gary is still free to continue on its mission to become a pariah in the future economy. This also means that, for example, the DAI algorithmic stablecoin is included in the first class hall of “qualified stablecoins”. But hey, no need.
The proposed bill is welcomed by a number of well-known and knowledgeable people in the space, in particular, to me at least, Jake Chervinsky, Head of Policy at the Blockchain Association, who tweet:
“There is a lot of action in Congress on regulating stablecoins right now and [Congressman Josh Gotthiemer] he just proposed a bill with the best language we’ve seen yet. If Congress does anything about crypto this year, it could look something like this. Congress is working on a bunch of crypto-related policy issues right now, but stablecoins are a priority. [Gotthiemer’s] bill released yesterday, not just the best we’ve seen, but pretty good.”
“The subscription model is important for DeFi stablecoins”
Also, according to Chervinsky, the proposed bill uses a voluntary subscription model, so issuers who want to take advantage of it can do so, but none are required to do so. The subscription model is important for DeFi stablecoins that use crypto-collateralized or algorithmic mechanisms, which would not be affected.
Let’s say this language becomes law, then what about an American CBDC? Well, what does America want? Above all, the US of A. wants to preserve the world order in which the dollar is the reserve currency. But will the United States be able to maintain this order, CBDC or not? I do not believe it. China, Russia and other big nations and trading partners just don’t want to trade in US dollars. They have every reason not to. It will be difficult to force them.
In a recent episode of the “What Bitcoin Did” podcast with Peter McCormackpresenting eric yakesauthor of the book “The seventh property: Bitcoin and the monetary revolution”, Yakes says (citing a WSJ article) that the proportion of world trade done in dollars has dropped from 80% in 2019 to 56% today. That’s a huge decline in just a couple of years.
Who wants stablecoins on Swift?
So if the United States wants to protect its position, what can it do? Here is my humble suggestion and that of many others: Enact this bill and others that create clarity and bolster innovation around stablecoins and other cryptocurrencies, ditch CBDC, and trust the trustless blockchain open, permissionless, and global, an American invention, by the way, as far as we know. And voila, you have a CBDC without the CB. They will be digital dollars in the true sense, free to move and trade around the world.
Are there any downsides? Well, the United States will control the issuance but not the transactions since the coins are issued on open networks like Bitcoin and Ethereal. If they are not, then we are back to square one. Who wants stablecoins on Swift? But just like Center and Tether can block addresses that hold USDC and USDT respectively, so the US government can force issuers to freeze wallets if necessary.
Will this happen? Not if we’re waiting for lawmakers to push the button; they never will. But if the US opens up to “qualified stablecoins”, then it could happen de facto anyway. Just as the Internet just happened, and just like cryptocurrencies… it just happened. Basically, all the innovation in the banking and financial sector during the last hundred years came from the American private sector. So why the hell wouldn’t this financial innovation be?
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This post The US already has a CBDC, just skip the “CB”
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