Stablecoins May Be a Route to CBDC, Says Fed Advisor

In recent times, there have been conversations about how preferable the use of stablecoins is in relation to other forms of digital assets including Central Bank Digital Currencies (CBDCs).

At an event that was held in London, Antoine Martin, a financial stability advisor at the Federal Reserve Bank of New York said that stablecoins may be a shortcut for the central bank of nations that intend to roll out their CBDC.

“Instead of issuing a retail [central bank digital currency], central banks could support stablecoins by allowing them to be backed one-for-one with balances in a central bank account,” said Martin while stating that there is no need for central banks to keep plunging funds and other resources into the development of their digital currency.

Speaking of the ease in managing a stablecoin as compared to a CBDC to a group of policymakers at the Gillmore Centre Policy Forum at Warwick Business School in London, he added,

“Adapting our regulatory and legislative environment to support stablecoins is already a formidable task, but it is probably easier than managing a CBDC for retail use, especially as the private sector currently provides all retail digital means of payments on legacy technology.”

Stablecoin And CBDC as Close Cousins

Martins went ahead to compare stablecoins to Chinese mobile payment systems Alipay and Tencent Pay which are considered most times as close cousins. Once a customer transfers funds using any of these payment platforms, the fiat equivalent is held in China’s central bank by the service provider. Therefore, the New York Federal Reserve advisor is advising that this mechanism be replicated with stablecoins.

“Indeed, for every yuan in customer deposits, Alipay and Tenpay must hold a yuan in an account at the People’s Bank of China, making them functionally equivalent to stablecoins.”

Before this time, Martins held a contrary sentiment for a stablecoin, he claimed they held more risks compared to CBDC. A few days ago, the Hong Kong Monetary Authority (HKMA) published a document that suggests that stablecoin volatility may impact their traditional finance. Unlike Hong Kong, Bangko Sentral ng Pilipinas (the Philippines’ central bank) is strongly in favor of stablecoins.