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Stablecoins and CBDC:
Substitution, Competition, or Cooperation?
Liu Dongmin, Song Shuang
Institute of World Economics and Politics (IWEP)Chinese Academy of Social Sciences (CASS)
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CBDC’s Advantages in Cross-border Payments
• Economic perspective
– high efficiency, low cost
• Security perspective
– traceable
• Global governance perspective
– fair, competitive, inclusive
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Three Proposals in 1st Meeting of FG DFC
• Multilateral System: IMF Leading
• Regional Cooperation: Countries leading
• Coexisting pattern
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Multilateral System: IMF Leading
SDR
CNY EURUSD
GBP
JPY
CHF
AUD
INR
RUR
BRL
ZAR
…… ……
completecredible
Special Drawing Right (SDR) is an important instrument of global financial governance.
convenient efficient
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Regional Cooperation: Countries leading
Country D
Country A
Country C
Country E
Country B
Country G
Country KCountry
I
Country J
Country H
Country F
Country Y
fairness
competition
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Coexisting Pattern
Country D
Country A
Country E
Country K
Country Y
IMF
Country X
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The Challenges faced by CBDC
• Architecture design
• Regulatory requirements
• Monetary policy
• Privacy and security
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Stablecoins & CBDC: Substitution in Short Term?
• The emergence and fast growth of Stablecoins
– from fintech start-ups to global financial/IT giants
– from private company developed to government regulated
• Key features of Stablecoins
– Fully backed by fiat currency
– Advantages of digital currencies
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Stablecoins as DFC: Design Principles
• 1:1 guaranteed by fiat currency, and can be convert to cash or bank deposits granted by law at par
• Issued by private commercial banks/fintech enterprises, but regulated by central bank
• Can be set similar interest rate to current deposits in commercial banks
• Central bank as the lender of last resort
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Stablecoins as DFC: Global Influences
• Stablecoins will be more competitive in global financial market.
• Hence, the CB-issued currencies behind stablecoins will be more recognized globally.
• The financial power of the counties with widely used stablecoins will be further enhanced when their CBDC areintroduced.
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Stablecoins & CBDC: Competition and Cooperation in Long Term
• CBDC’s advantages:
– Controlling currency issuance and circulation more directly
– Implementing monetary policies more effectively
– Having advantages on macro-prudential supervision
• Promoting technological innovation by competing and cooperating between CBDC and stablecoins
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Thank you!