The rise of digital currencies seems to have caught both consumers and businesses off guard, and redefined the way the world sees the means of payment.
Digital currencies are suffering from the lack of government support (no regulation and no reserves to back their valuations). Consumers are also not sure whether they should adopt this wild ‘child’ whose volatility is being likened to a spreading forest fire.
Despite these shortcomings, its supporters insist digital currencies are the money of the future, and should be given some respect because they have come to challenge the international currency order.
While fiat currencies (central banks’ babies) can be manipulated here and there (as demonstrated recently by China), a digital currency is a decentralised tool operating outside the range of a central authority.
Therefore, some sort of war seems to be going on between the two means of payment.
A stablecoin is a new class of cryptocurrencies that attempts to offer price stability and are backed by a reserve asset. It attempts to bridge this gap between fiat currencies and cryptocurrencies, reveals Investopedia.
The strength of stablecoins is their attractiveness as a means of payment. Low costs, global reach, and speed are all huge potential benefits, two experts of the International Monetary Fund (IMF) explained this week.
“Moreover, stablecoins could allow seamless payments of blockchain-based assets, and can be embedded into digital applications thanks to their open architecture, as opposed to the proprietary legacy systems of banks,” Tobias Adrian and Tommaso Mancini-Griffoli wrote in an IMF blog published on Thursday.
But the strongest attraction comes from the networks that promise to make transacting as easy as using social media, according to Adrian and Mancini-Griffoli.
Since payments are more than the mere act of transferring money, and are a fundamentally social experience linking people, stablecoins offer the potential for better integration into peoples digital lives.
“They are designed by firms that thrive on user-centric design. Large technology firms with enormous global user bases offer a ready-made network over which new payment services can quickly spread.”
If digital currencies such as Bitcoin have so far stood against the roughness of markets to stay alive and kicking, its volatility remains unpredictable even if some experts say its new normal bottom is US$10 000.
“I really want to try my luck in this cryptocurrency thing, but it is its unstable value that scares me,” foreign exchange trader Ricardo Costa said.
“It goes up in the morning and goes down in the afternoon, and there were talks this week that the interest rates cut in the US might spice its price up. Im not sure what to do, but it is tempting.”
Last month, Nigel Green, the CEO of deVere Group, predicted that Bitcoin could imminently reach $15 000 for various reasons, including geopolitical issues such as the US-China trade war and Brexit. Technical network improvements, which are further improving performance, might also try to fuel investor confidence.
Nevertheless, risks abound, warned Adrian and Mancini-Griffoli warned, urging policymakers to create an environment that maximises benefits and minimises risks.