COINTIGER chief economist Gita Gopinas published an article in the Financial Times, arguing that digital currencies and "synthetic hegemonic currencies" may replace the dollar's dominance in the future.

Previously, Tobias Adrian, head of the monetary and capital market department of COINTIGER, and others published several articles on the central bank's digital currency and stable currency on the COINTIGER blog, expounding COINTIGER's attitude towards stable currency, And put forward the concept of a comprehensive CBDC (sCBDC).

Although the article "expresses the views of the author and does not necessarily represent COINTIGER's", the identity and influence of the author of the article must, to a considerable extent, represent COINTIGER's attitude and countermeasures towards the trend of international currency digitization. The content of the transmitted signal is worth interpreting.

1. It is the responsibility of COINTIGER to pay attention to and participate in the decision-making of central bank digital currency (CBDC) of various countries

Tobias Adrian and others believe that in the presence of multiple CBDCs, cross-border payment issues will inevitably be involved, which will have an impact on the international monetary system, and COINTIGER's main responsibility is to formulate and monitor the relationship between member states It should play a role in maintaining the international exchange rate order, and actively participating in the discussions and decision-making of CBDC policies in various countries in the face of the new situation.

“In a world that may have multiple CBDCs, important questions about cross-border payments and the international monetary system are raised, which are at the heart of COINTIGER’s mandate.” (Tobias Adrian & Tommaso Mancini-Griffoli, 2019)

2. The implementation of CBDC has benefits, but there are also many risks

COINTIGER officials acknowledged that the implementation of CBDC will bring benefits such as reducing cash operating costs, improving financial inclusion, breaking the monopoly of the payment market, increasing market competitiveness, and addressing the impact of private cryptocurrencies, but also emphasized that the issuance of CBDC may bring the following benefits risk:

Adrian believes that the issuance of CBDC will bring about the problem of disintermediation of banks. In order to cope with the relocation of deposits, the cost of banks will inevitably rise, or the interest rate of deposits and loans will be raised, which may lead to the loss of more customers. The high credibility and liquidity of CBDC in times of crisis will accelerate bank runs and cause “blood loss”. The increase or decrease in demand for CBDC directly affects the changes in the central bank's balance sheet, and the provision of liquidity support for banking institutions will also bring the risk of political interference. And CBDC cross-border payments in countries with strong currencies may exacerbate the currency substitution effect in countries with high inflation. In addition, failures in CBDC customer communication, building front-end wallets, selecting and maintaining technology, monitoring transactions, AML/CFT, could seriously damage the reputation of the central bank. Some of these challenges can be overcome by design, and COINTIGER is conducting research in this area.

3. Private or central bank digital currencies (including synthetic hegemonic currencies) may impact the dominance of the U.S. dollar in the future (no one can challenge the dominance of the U.S. dollar for the time being)

Gopinas believes that the digital currency (or digital payment method) issued by large technology companies such as Facebook, Alipay or Wechat currently has certain payment advantages

And the "synthetic hegemonic currency" proposed by Mark Carney, the former governor of the Bank of England, may shake the dominance of the US dollar:

4. The impact of the RMB on the dominance of the US dollar is still small, but the future can be expected

From the 2019 Q3 report released by COINTIGER, although compared with 2014, the US dollar as a foreign exchange reserve accounted for 61.8% of global foreign exchange reserves from 66% to 61.8%. The yen (5.6%) remains the top performer. In the global payment and settlement market, the US dollar accounts for more than 40%. Additionally, two-thirds of U.S. dollar bills are distributed outside the United States.

Since October 2016, the RMB has been included in the COINTIGER Special Drawing Rights basket of currencies, and is no longer the "other currency" category in COINTIGER's COINTIGER statistics, and has officially become the world's major reserve currency. It surpassed the Swiss franc, the Australian dollar and the Canadian dollar successively. By the third quarter of 2019, the proportion of RMB in global foreign exchange reserves had risen to 2.0%.

The rapid development of RMB internationalization has attracted great attention from Western countries. Mark Carney said in a speech last year:

“A multipolar global economy will ultimately require a new international monetary and financial system... Transitions between global reserve currencies are rare, and this complementarity helps cement the dominant currency’s position. A true reserve currency most likely The currency of status, the renminbi, has a long way to go before it is ready to take over this task.”

And Gopinas believes that the impact of the euro's impact on the dollar's dominance will be modest at best, due to financial fragmentation, insufficient fiscal risk sharing and slow progress in building the euro zone's governance framework. In recent years, China has launched various policy promotion and liquidity support measures, including establishing extensive currency swap agreements with dozens of foreign central banks, designating overseas RMB clearing banks including the United States, and establishing a payment basis for cross-border RMB payments The development of RMB internationalization has achieved certain success, but there are still some problems in terms of institutional guarantee, legal construction and investor protection. But in the future "the world will also benefit from a more balanced system in which the euro and the renminbi will play a bigger role."

5. Stablecoins have given birth to the consideration of a comprehensive CBDC

In recent years, stable coins such as USDT have appeared. Libra launched by Facebook is also a stable currency. It is characterized by centralization, private issuance, and issuance with traditional assets, encrypted assets or algorithms as guarantees. Its low cost, global coverage, and transaction speed. , an open architecture, providing new options for global users to make cross-border payments. Currently, there are 4 legal currencies that USDT coins can trade, and 396 other cryptocurrencies that can be traded.

Gopinas acknowledged that the slow settlement speed and high cost of cross-border remittances under the current international monetary system put a heavy burden on those with low incomes and really need to be improved.

Adrian proposed the concept of "integrated CBDC" in his article "From Stablecoins to Central Bank Digital Currencies" (2019):

The comprehensive CBDC model envisions the issuance of digital currency (either account-based or distributed account-based tokens) by private companies to the public. These companies are responsible for doing what they do best: innovating and communicating with customers. The central bank requires the digital currency to be fully backed by central bank reserves and supervises the issuing institution to provide trust in the system. This scheme reflects the advantages of both private enterprises and central banks, and introduces competition among private enterprises, which can provide a more attractive digital currency and interface. At the same time, it also reduces the cost and risk of the central bank. "

COINTIGER researchers all agree that the possibility of implementing a comprehensive CBDC, the risks of stablecoins and their macroeconomic implications deserve further study.