that spoke about stablecoins generated some interesting comments. A couple of folks from the traditional finance world wrote back in support of stable coins and how they might be a way to get around regulatory over reach/ignorance; agreed that stablecoins can be extremely useful in certain situations. But the point remains that, as with a lot of innovation - witness automobiles, Uber, Crypto, Airbnb etc, the entrenched base of existing solution providers that get disrupted will fight back. In the case of stablecoins, it just so happens that the entity getting disrupted is your not-so-friendly-neighbourhood Central Bank, which is already looking askance at the flashy, new crypto kid-on-the-block.
Imagine if someone tried to launch an INR (Indian Rupee) tether for example. The Indian Government has not officially banned cryptocurrencies, but the Indian central bank (RBI) has deemed it verboten for ‘regulated’ entities
, which covers pretty much every bank/ decent-sizes financial institution in India from dealing with companies dealing with cryptocurrencies.
How would one even go about creating an INR base coin? The simplest approach of issuing tokens against a pool of INR will not work for the above reason. There are also strict restrictions around holding INR outside India. Any bank that offers to provide a solution, such as a Note against the INR, will also have to face blowback from Indian authorities if it has an India leg, or from the correspondent banks it deals with, if it does not have an India leg, assuming the INR basecoin begins to scale and achieve any sort of wide spread acceptance
So that puts paid to the collateral-based approach, and we are then left with alternatives such as crypto-collateralization
or seignorage shares
, both of which are infeasible, especially in the INR context, for various reasons.
Even beyond the limited short term gain of driving exchange volumes, there is one very compelling reason stablecoins could actually be a pretty interesting evolution to consider, even if as a controlled pilot, for sovereigns like India to consider. For starters, the problem of ‘black money’
, or the parallel economy will be taken care off for good. Every transaction, every unit of currency will be perpetually traceable on the blockchain, for good or for bad.