Summary

World Bank digs deeper into stablecoins

World Bank says Bitcoin and other cryptocurrencies’ volatility limits them

Ever since the 2017 bull-run, financial institutions globally have been increasingly experimenting with blockchain technology and cryptocurrency.

On April 14th the Bank for International Settlements, part of the World Bank Group, issued a 70-page report titled “Payment aspects of financial inclusion in the fintech era.”

The report outlines a variety of fintech technologies including cryptocurrency and blockchain technology concepts. More importantly, the report outlines stablecoins and central bank digital currencies (CBDC).

So-called “stablecoins” have evolved from the cryptoasset phenomenon, aiming to mitigate cryptoassets’ volatility with a view to facilitating payments. …For the purpose of this report, cryptoassets such as bitcoin are value-based instruments (ie they are not based on accounts) which, unlike traditional instruments, neither constitute a financial claim on an issuer nor give rise to a proprietary right against an entity (ECB (2019a))… …Compared with cryptoassets, stablecoins could be more capable of serving as a means of payment (G7 (2019)) World Bank Group Report

According to the report, the World Bank digs deeper into stablecoins as stablecoins mitigate financial risks. However, the report denounces Bitcoin as a viable payment method due to its volatility and its lack of physical backing.

Why CBDC’s and stablecoins matter

Since both CBDCs and stablecoins are pegged to a centralized currency, they are not volatile and as a result, relatively less risky than traditional cryptocurrencies. Furthermore, CBDCs and stablecoins offer real additions to traditional currencies.

One potential use case is facilitating cross-border transactions in a quicker, reliable, and secure way. Blockchain transactions take seconds to confirm, versus the hours or days traditional bank transfers may take. Furthermore, blockchain transaction fees are pennies to the dollars (a $1B transfer cost just $0.68).

World Bank’s 2017 Report

This report is not their first mention of cryptocurrencies and blockchain technology.

In 2017, the World Bank published a report, “Distributed Ledger Technology (DLT) and Blockchain”. The report placed great emphasis on Bitcoin and Ethereum blockchains and their potential. However, in recent years the World Bank has drawn away from Bitcoin as an effective payment method but is dwelling deeper into blockchain technology.

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