The International Monetary Fund, tasked with fostering monetary cooperation and financial stability among its 189 member countries, has outlined key features of stablecoins that make them a potential better fit for a modern society of digital lives.
In a recent blog post, the IMF cites low costs, global reach and speed as huge potential benefits of stablecoins, which are a type of cryptocurrency pegged to other assets such as fiat money or precious metals to avoid volatility.
By allowing seamless payments of blockchain-based assets, the authors note that stablecoins can be embedded into digital applications, functioning significantly differently than the closed proprietary legacy systems of banks.
Money as a form of language and as a means of expression makes stablecoins more attractive than traditional currencies with respect to their technical ability to be interwoven into social media platforms and mobile apps.
Alluding to Facebook’s Libra, a stablecoin under development that has the power to be deployed to the social networking giant’s 2+ billion users, the authors note,
“The strongest attraction comes from the networks that promise to make transacting as easy as using social media. Payments are more than the mere act of transferring money. They are a fundamentally social experience linking people. Stablecoins offer the potential for better integration into our digital lives and are designed by firms that thrive on user-centric design. Large technology firms with enormous global user bases offer a ready-made network over which new payment services can quickly spread.”
The report also lists how stablecoins can be co-opted by tech giants, fueling a new kind of hegemony and destablizing the banking system.
The downside of stablecoins
“First, banks may lose their place as intermediaries if they lose deposits to stablecoin providers…
Second, new monopolies could arise. Tech giants could use their networks to shut out competitors and monetize information, using proprietary access to data on customer transactions…
Third, weaker currencies could face threats. In countries with high inflation and weak institutions, local currencies might be shunned in favor of stablecoins in foreign currency…
Fourth, stablecoins could promote illicit activities…
Fifth, stablecoins could provoke the loss of “seigniorage,” where central banks capture profits from the difference between a currency’s face value and its manufacturing cost…”
You can check out the full report here.