Stablecoins in Cryptoeconomics: From Initial Coin Issuance to Central Bank Legal Digital Currency -Part 9

4. Impact of stablecoins on the central bank--taking the central bank digital currency as an example

In addition to causing concerns from securities regulators, cryptocurrencies have also attracted the attention of central bank officials. The rapid spread and development of stablecoins will further intensify its competition with the official currency issued by the central bank. These acts of private issuance have undoubtedly triggered heated public discussions, and governments and central banks of various countries are eager to find countermeasures.

Central Bank Digital Currency (CBDC) is one of them, which means the issuance of an official and public “stable” cryptocurrency, fully backed by central bank reserves. In fact, the role of CBDC in the economy is not significantly different from that of stablecoins. Since CDBC and stablecoins have similarities, it is unlikely that cryptocurrencies coexist, especially stablecoins and CBDCs. CBDC will bridge the existing gap between the real and the digital economy, as well as between the legal and digital currency. It is also the main purpose of the creation of stablecoins.

Although the central bank’s electronic money has significant advantages, a central bank may lack incentives to conduct issuance. Because of the high reputation risk of the anonymity mechanism behind the cryptocurrency and the relatively new blockchain technology, unpredictable operational risks are also worrying.