The issue with stablecoins and CBDCs in emerging markets and developing countries
People from emerging economies have been opting for crypto, to hedge against the traditional markets. However, many countries have not been supportive of private cryptos and are instead looking at stablecoins or central bank digital currencies [CBDCs].
Nevertheless, a recent report stated that stablecoins and CBDCs could create daunting issues in the emerging markets and may not address problems that fintech innovations are trying to address. The Bank for International Settlements [BIS] released a paper titled What Does Digital Money Mean for Emerging Market and Developing Countries, on Friday that noted,
“Stablecoin arrangements aspire to improve financial inclusion and cross-border remittances – but they are neither necessary nor sufficient to meet these policy goals.”
Emerging markets and developing economies [EMDEs] around the world including Latin America have turned to stablecoins as a store of value and an alternative to “volatile” crypto. However, when the national fiat itself was shaky and subjected to inflation, stablecoins were seen as a good alternative.
But the paper posed an important thought of whether these stablecoins could offer lasting competitive advantages over rapidly developing, evolving digital payment services. Stablecoins have limited purpose when compared to cryptocurrencies.
To match the innovations taking place in the crypto industry alone has been a challenge for stablecoins. Moreover, the report stated that stablecoins could generate new risks in the arena of governance, efficiency in payment processes, consumer protection, and data privacy.
CBDC, on the other hand, is becoming regulators’ go-to choice. China is doing it, Nigeria has done it; India has been considering it as well. But even CBDC posed policy challenges for EMDE authorities, as per the paper.
It stated, “…there is a risk that in periods of systemic stress, households and other agents may suddenly shift from bank deposits or other instruments into the CBDC, spurring a ‘digital run’ of unprecedented speed and scale.”
Pros and cons not only exist for cryptocurrencies but also for CBDCs and stablecoins. The emerging nations might be focusing on the progress from traditional finance to modernizing finance through CBDCs and Stablecoins. But what they don’t understand is crypto has already carved a new path for finance. As more and more people join in, education would play a major role in driving innovation and growth- for both, crypto and economies.