As China’s digital yuan takes the global stage at the winter Olympics, a top cryptocurrency executive believes the U.S. is actually ahead in the worldwide digital currency game.
Recently, the Federal Reserve has unveiled its thinking about how a central bank digital coin might operate, without taking any firm stance on the topic. Only 2 countries, Nigeria and the Bahamas, have functional CBDCs, while a few other economies are moving toward pilots this year.
However, Circle CEO Jeremy Allaire reiterated his belief that “the U.S. is winning the digital currency space race” in an interview with Yahoo Finance. Circle has the largest U.S.-issued stablecoin with more than 50 billion in circulation, and has supported about $1.7 trillion in transactions over the past year.
A CBDC needs qualities like transparency, accessibility, and “a standard and technology that people can innovate, without permission,” he said.
“That's the kind of dollar I think we want to win in this space race and on the Internet, as opposed to something that is tightly controlled [and] government administered, which is what China initiatives really represent,” the CEO added.
Looking at Circle’s stablecoin (USDC) alone, there are hundreds of different digital wallets that support this in hundreds of countries on exchanges all around the world, Allaire said. The question is whether the U.S. can gain momentum behind this, and create a competitive, open model – mirroring how the West has approached the Internet over the past decades – is brought to bear on the booming digital coin movement.
Circle recently launched an ad campaign promoting the features of private stablecoins over a central bank digital currency, and just after the House held a hearing on regulating the blossoming stablecoin sector.
The Circle ad took aim at CBDCs that “carry the specter of privacy erosion, making cyber threats and technology upgrades a taxpayer burden, rather than the motive of free-market drive, and well-regulated competition.”
As the Fed takes baby steps toward issuing a digital dollar, Allaire believes private stablecoins will coexist with central bank digital currencies in the future. “We're starting to see policymakers emphasize that this is here to stay, this is growing,” he told Yahoo Finance. “I think there's an acknowledgement that there's a here and now.”
Stablecoin's 'open questions'
This week, Treasury Undersecretary for Domestic Finance, Nellie Liang, told Congress that a CBDC will probably determine exactly how stablecoins coexist with a Fed coin. She added it may be possible for a Fed coin to supplant stablecoins, depending on the kinds of features the Fed would choose for it.
“But there are questions in the future as to how it would coexist with the CBDC and whether that's the best financial system in the future,” Liang said.
Separately, Chainalysis says a digital dollar would be in a strong position compared with private stablecoins during times of market stress because an American digital dollar would hold zero credit and liquidity risk, whereas another financial institution’s creditworthiness might be called into question.
Part of Washington’s crypto regulation debate involves how to classify stablecoin issuers, an issue that surfaced at this week’s House hearing. Allaire told Yahoo Finance that Circle still hasn’t formally submitted its application to become a bank yet and remains in the pre-application phase.
“We are in a process that is a long process,” Allaire said, adding that the company has “a lot going on, just general the physics of everything that we're doing.
Additionally, “I think the second is the federal government is coming up to speed on stable coins…and I think they are just trying to understand, ‘okay, where's this going to fit in terms of the kind of charters that might apply? And there's open questions,” the CEO added.
Some in the industry have pointed to a no-win situation, where issuers apply to become banks but have difficulty obtaining bank charters or FDIC insurance.
This week, Treasury’s Liang said that the Presidential Working Group recommends that stablecoin issuers be insured depository institutions, not that stablecoins need to have deposit insurance. Requiring deposit insurance is an issue for further discussion, she added, and would depend on what types of assets would be needed to back stablecoins.
“This isn't necessarily about FDIC insurance for a fractional reserve bank,” Allaire told Yahoo Finance in response. “But is it possible that there is some insurance framework that's more specific to the risks of the reserves and liquidity of a stablecoin. So there's things to work out and that will take time.”