Stablecoin is a legal UFO

States remain reluctant to develop private digital currencies, which are a powerful lever for innovation, notes digital expert Vincent Lorphelin in an article for "Le Monde".

Back in 2009, bitcoin set out to be the first private digital currency. But its insignificant use as a means of payment has, for the time being, disqualified it as a currency. The real shock came with Facebook's Libra project. Announced in 2019 as an international cryptocurrency, it immediately provoked an outcry from governments. Vigorously called to order by Washington, Libra renamed itself Diem, promised to wait for federal authorization and limited itself to being just a "stablecoin" (a stable cryptocurrency) of the dollar. Like a casino token, it's a convenient representation of a dollar, backed by an equal amount of bills in a safe, exchangeable directly and free of charge between smartphones.

This private currency would make international transfers, currently charged at 6.5%, virtually free of charge. It promises fee-free bank accounts - 1.7 billion people are unbanked - instant loans and improved banking services thanks to big data. Several stablecoins are already operational, but are only used for the cryptoasset market. These are the thousands of virtual assets derived from the blockchain, whose value results from supply and demand.

Bitcoin is a cryptoasset, not a private currency. It is certainly used as a means of payment by Paypal or Mastercard, and inducted as a "legal tender" by El Salvador. But it is being tested there primarily for cross-border transfers, which account for 20% of the country's GDP, to bank 70% of the population and loosen the dollar's grip. Its volatility will prevent its adoption as a real currency. In fact, it looks more like modern gold - an asset - than money.

Time lag between innovation and regulation

The more perennial interest of bitcoin and other cryptoactives is to provide an infrastructure for thousands of applications to secure identity, money, tangible and intangible assets, to lend, borrow, insure, invest, predict, bet, trade, share or co-construct without intermediaries. The multitude of projects underway sketches a powerful scenario for innovation in the years ahead: community currencies, inspired by local currencies such as the wir in Switzerland or the eusko in the Basque country, are multiplying to focus on specific territories or social networks.

Loyalty cards such as Fnac or Auchan are becoming purchasing assistants, based on preferences for fair trade or food intolerances. Micropayments let you buy a piece of music or an item with a single click. Micro-payments allow users to monetize their data or provide small online services. Authors' micro-contracts enable each contributor to a collective project to receive a share of the project's profits if it bears marketable fruit, for example a Wikipedia equivalent or an innovative project. Thanks to their immersive social interfaces, Big Tech organizes massive collaborations with new tools derived from social networks, wikis, digital twins, shared documents and videoconferencing. Based on the Uber business model, these platforms are attracting a generation of professionals accustomed to video games, short missions, multiple objectives, collective telecommuting, creativity and automatically calculated remuneration.

Yet regulators are reluctant to authorize stablecoins. Money laundering, terrorist financing and piracy are banking risks with which they are already familiar. Their real fear stems from the inevitable time lag between innovation and regulation. Stablecoin is a legal UFO. It could be tolerated on a small scale, but is now worth $100 billion. The flash crash of 2013 showed how explosive the combination of infox, social networks and high-frequency trading can be. On the scale of Facebook's 2 billion users, this risk takes on systemic proportions and poses an unidentified threat to global financial stability.

Technological sovereignty

The United States oscillates between opportunity for innovation and risk of catastrophe. At the moment, despite strong official posturing, the stage is tilting slightly in favor of stablecoin. Firstly, the banks are not standing in its way. On the contrary, they're teaming up with Big Tech to improve their productivity, and they're less afraid of competition from stablecoins than from central bank currencies, which, with their state guarantees, will attract massive deposits.

Secondly, China is brandishing the e-yuan as an emblem of its struggle for global supremacy. It asserts its technical lead and officially threatens to start a patent war. Low-cost banking services will take hold along the Silk Road, spreading the yuan at the expense of weaker currencies. The symbol of a conquering currency against an aging dollar is aimed at the heart of the Biden doctrine, based precisely on innovation and competition against China in the world order.

We can therefore expect Washington to gradually authorize stablecoins, albeit on a limited scale and while awaiting its own central bank digital currency. This will enable the regulator to familiarize itself with business models, to fine-tune its regulations, and to better shape the digital dollar in light of China's progress.

The European Central Bank, for its part, is giving itself five years to launch its digital currency based on the Chinese model. As Big Tech is a foreign company, the European Central Bank wants to pre-empt the private currency market in the interests of its monetary sovereignty. In return, its delay exposes Europe to a serious loss of technological sovereignty. To limit this risk, the digital euro should not be conceived as a competitor to private currencies, but as a monetary platform open to private innovation, even if this means limiting its size initially.