Li Lihui: Potential risks of stablecoins and coping strategies
On December 28, the “2021 First Digital Finance Frontier Academic Conference” was successfully held online. The conference was hosted by the Tsinghua Digital Financial Asset Management Research Center and presided over by Professor Luo Mei, director of the center.Li Lihui, former governor of the Bank of China and an advisory member of the Tsinghua Digital Financial Asset Management Research Center, delivered a keynote speech entitled “Stablecoins: Potential Risks and Response Strategies”.This article is organized based on the content of the speech.
Digital finance has developed rapidly in recent years, and digital currency is an important part of it. We collectively refer to forms of currency using digital technology as digital currencies, which can be broadly divided into fiat digital currencies and non-statutory cryptocurrencies.Illegal cryptocurrencies can also be divided into two major categories. One category is the so-called virtual currency.Overall, there is a lack of asset support, and transaction prices have fluctuated;Another category is stablecoins, which we are focusing on today.Stablecoins claim to be anchored to sovereign currencies, supported by financial assets, and can maintain a stable value.
The stablecoin market is developing rapidly and is highly concentrated. According to Coingecko's July data, the total market value of global stablecoins in early July exceeded 110 billion US dollars. The top 3 stablecoins account for 90% of them, of which USDT accounts for 64 billion US dollars.USDCAbout $26 billion, and BinanceUSD is about $11 billion. Currently, all countries around the world lack clear legal regulations on stablecoins, lack effective financial supervision, and at the same time lack credible external audits.
The largest financial market is in the US,Let's first take a look at the dynamics of US stablecoins:First, the US President's Financial Markets Task Force recently published a “Stablecoin Report”The “Report” defines a stablecoin as a digital asset designed to maintain a stable value relative to a domestic currency or other reference asset. Stablecoins and their activities carry the risk of speculative digital asset transactions, which may cause systemic financial risks.
In response to these situations, the “Report” suggests that certain activities in the stablecoin mechanism should be defined as systemically important payment clearing and settlement activities as soon as possible and incorporated into the existing regulatory system. Furthermore, existing US laws will be added as soon as possible to restrict the activities of custodian wallet providers and stablecoin issuers in compliance with commercial institutional affiliations, so as to effectively manage the various risks associated with stablecoins and related activities.
The second dynamic is the launch of FacebookLibraalternativesDiemIt changed from targeting a basket of currencies in the past to a single pegged dollar.Diem's founding institution has a user base of more than 2 billion dollars around the world. Once approved, it is likely to rapidly develop into a supranational global currency, infiltrate the economic lives of ordinary people, comprehensively compete for traditional financial services, and form a multinational financial unicorn that surpasses banks, which may have a major impact on the existing financial system and monetary system.
Since Diem's basic foundation is still the US dollar, it may also become a tool for the US to continue promoting the hegemony of the US dollar currency in the digital economy era. This may have an impact on the entry of China's digital yuan into the international market and affect the process of RMB internationalization. Whether the plan is finally approved remains to be seen. It is worth noting that a vice chairman of the Federal Reserve mentioned in a speech on June 29 that private institutions should support the issuance of stable coins with a reasonable structure, believing that it will support the role of the US dollar in the global economy.
Stablecoin supporters believe that stablecoins may be widely used by households and businesses as a means of payment. If stablecoins are well-designed and properly regulated, they can support faster, more efficient, and more inclusive payment options. But at the same time, it is also important to recognize the risks of such new financial products.
China is a major economic country. Implementing a higher level of economic openness and financial openness, including opening up capital markets, has become a basic national policy.Although China explicitly prohibits virtual currency transactions, including stablecoins, stablecoins based on distributed architectures and decentralized agreements may still have an impact on China's financial market.Focusing on the future, we should actively cultivate the core competitiveness of digital finance, proactively respond to the impact of decentralized finance, protect investors' interests, maintain the stability of the financial market, and ensure the sustainable development of financial innovation.
Specifically, there are the following three suggestions:
First, make the digital yuan the best central bank digital currency in the world.Further improve the underlying technical structure and application scenario design, and strive to maintain the leading position of China's central bank's digital currency experiment in the world. Building the world's best central bank digital currency is not only conducive to promoting inclusive finance to effectively cope with the impact of virtual currency on the current monetary system and financial system, but also to promoting balance and coordination of the global monetary and financial system in the digital economy era.
Second, establish a financial security barrier with a distributed architecture.
Digital currencies and other decentralized financial instruments based on new digital technology are already potentially disruptive. The focus should be on studying the possible path of new financial instruments under this architecture to overcome financial infrastructure barriers, prepare technical countermeasures and policy plans, and build a security barrier for digital finance.
Third, establish penetrating supervision in industrial integration.
Digital technological innovation is changing the model of financial services, gradually forming a new financial business format that interacts, intersects, and intersects. The new business format calls for regulatory innovation. A digital financial supervision system should be jointly built and shared by financial supervisory authorities, covering all financial institutions, including technology institutions involved in financial services. At the same time, it is necessary to penetrate different financial markets and financial businesses to achieve all-round intelligence in the financial supervision process.
