In the last few years, we have seen considerable and commendable research in the blockchain and crypto sector by the financial institutions of different countries. The major reasons why the banks have been carrying out researches like this has boiled down to one major factor, the creation of a digital currency, which is also known by its popular name, the Central Bank Digital Currency.
The idea behind creating a digital version of their physical currencies has been accepted by all financial institutions across the world. Even though not all, the developed and the developing ones. The design of their respective digital currencies puts the power of watching over transactions made digitally into their hands. With the digital currencies, they can watch the transactions carried out using their unique channels or through some third-person users such as banks and other financial outfits.
Central Banks are beginning to create their digital currencies
At this point, various financial powerhouses have started their pilot programs on the way to creating their digital currencies, while others are still in the research stage. One thing that should be notable in all this is that people should not compare digital assets or stablecoins to digital currencies. This means that most of the digital currencies that will be created would not be suitable for trading.
Bitcoin and other digital assets are used. The digital currencies would act as the digital substitute for cash as the banks would be in the controlling sit to watch over the currencies and how people use them in transactions. The question on most people’s lips is that since digital currencies serve an entirely different use from stablecoins, why is there a big conflict between the use of both in the economy.
Central banks have been known over the years to be the strictest entities for regulation relating to money. Should any entity want to involve themselves in their usage, they would need to follow the banks’ instructions to the latter. With the banks already making their foray into the digital world, the same rules they have been wielding would apply to any merchant or entity already in the market that wants to participate. A typical example is a bill that the United States introduced around November 2020.
Banks might want to enforce their rules on the centralized crypto sector
According to various analysts and individuals in the financial sector, they have mentioned that the rule would seek to exact the same regulation used on banking entities to the issuers of stablecoins. With this happening, the market could witness a massive impact of the regulations on the stablecoins that are in the market. While some stablecoins have been able to evade regulation, others have been duly studied and approved.
Even at that, the bill points that they are very fragile. Analysts have also mentioned that regulators in countries outside the United States could use the bill. The decentralized stablecoins would continue to be in the market, and if the centralized stablecoins are eliminated from the market, it could leave a big hole left to fill. To make this easy on the traders, most of them would be looking to sell their centralized assets and transfer the worth into decentralized assets.
This would serve two purposes, with the first being the ability to trade an alternative of the centralized tokens and still have their funds in assets that cannot be classed under the regulatory light of the regulators. While much is said about the decentralized protocols and the ills in the sector, various protocols have started to mitigate their way out of the issues. Meanwhile, issues like stability would not be solved at this point in time.