Gu Yanxi: Talking about the competitive landscape of the euro and the dollar in the field of digital currency

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In the field of digital currency, the U.S. dollar is rapidly establishing its advantages over the euro.

Original Title: “The Euro-U.S. Dollar Controversy in Digital Currency”
Written by: Gu Yanxi, founder of the American Liyan Consulting Company, a researcher and practitioner in the blockchain and encrypted digital asset industry

Before the advent of blockchain technology and encrypted digital currencies, the Euro-dollar dispute had already existed. As a currency jointly issued by major European countries, the euro has been trying to increase its influence in the global currency market. Since the emergence of blockchain technology and encrypted digital currency, the competition between the euro and the dollar has added a new dimension of competition. In addition to paper and centralized electronic accounting technology, the two currencies have begun to compete on the medium of encrypted digital currency. And this new medium adds more complexity to the competition between the two. This brings both challenges and opportunities for the United States and the European Union. However, judging from the current situation of the development of competition between the two in the field of encrypted digital currencies, the US dollar is establishing a very strong competitive advantage.

The application of technology is neutral. When a new technology appears, any party in the society can use different ways to develop different applications in different fields. The same is true for applications in the field of blockchain technology and encrypted digital currency. The first stable currency USDT was issued by the private company Tether in the market. Tether claims that it is issuing a USDT based on a reserve of USD. After the emergence of USDT, it has been continuously welcomed by the market, and its circulation is increasing. There has been an accelerated growth in the past year. Since the emergence of USDT, digital stablecoins based on the US dollar began to appear in the US market in a compliant manner. These stablecoins are all managed by private organizations with equivalent amounts of US dollars in institutions with custodian qualifications, and then issue equivalent amounts of US dollars stablecoins. The brands of these stablecoins include USDC and PAX, among others.

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During the development of digital stablecoins, the emergence of Libra directly pushed the development of stablecoins to an unprecedented level. In the design of Libra 1.0, its stablecoin design method and the members of the Libra Association supporting this stablecoin immediately made financial regulators and central banks in various countries aware of the risks brought by Libra. Different financial regulatory agencies and central banks have therefore adopted different response measures. The members of the Eurozone’s financial regulators are generally vigilant and restrictive towards Libra. In view of the attitudes of various countries’ financial regulators towards Libra 1.0, Libra 2.0 has made very big changes. The main change is to issue a series of corresponding Libra stablecoins based on the existing legal currency. At the same time, Libra is also willing to cooperate with various central banks to issue digital stablecoins on the Libra blockchain. These changes of Libra have greatly reduced the confrontation between it and the world’s major central banks, thus helping it to market. However, it is obvious that the world’s major financial regulators still hold a very vigilant attitude towards Libra. The recent G7 resolution clearly stated that before the corresponding regulatory policies are determined, stablecoins like Libra should not be allowed to be issued and circulated. Although the major EU countries, Germany, France and Italy, and the United States are all in the G7, the decision of the G7 also shows their common attitude, but in terms of specific implementation and actual progress in the market, the euro countries and the The United States still has very obvious differences in the development of stable currencies.

Digital stablecoins include existing stablecoins issued by private institutions in the market and CBDCs to be issued by various central banks. Currently the European Central Bank and the Federal Reserve are planning to issue their own CBDC. However, there are already digital dollar stablecoins that are issued based on the US dollar and are compliant under the US regulatory system. The current compliant and non-compliant digital dollar stablecoins in the market can be said to occupy all of the stablecoin market. There is currently no influential euro-based stable currency in the market. Although the number of such stablecoins issued is insignificant relative to the existing legal currency circulation, the rate of growth is very significant. Correspondingly, the circulation of these stablecoins is also changing the influence of the euro and the dollar in the market. Moreover, it seems that the current development situation will not change significantly. In other words, stablecoins based on US dollars in the market will continue to grow rapidly, while stablecoins based on euros and promising for the market have not yet appeared.

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Judging from the regulatory attitudes of the issuers of the euro and the US dollar in this regard, the different regulatory attitudes will further exacerbate the gap between the US dollar and the euro in the field of digital currencies. Recently, the German Finance Minister made it clear that he does not support digital currencies in the private sector. In sharp contrast is the attitude of the US financial regulators in this regard. There are now private institutions in the US market that have issued digital dollar stablecoins in a compliant manner. Recently, the OCC, which oversees the U.S. Federal Banking industry, issued an open letter stating that Bank of America can provide stablecoin issuers with custody services for reserves. OCC has expressed its clear view in this regard, so Bank of America can safely provide reserve custody services for stablecoin issuers. This provides greater convenience for the issuance of digital dollar stablecoins in the market, and therefore will encourage more digital dollar stablecoins to be issued and circulated in the market. Brian Brooks, the acting director of the OCC, even questioned the necessity of issuing USD CBDC. In his opinion, the original intention of the emergence of the US dollar stable currency is a US dollar that needs to circulate freely on the Internet. Now that there are digital dollar stablecoins in the market that can be freely circulated and used, is it still necessary to issue USD CBDC? Of course, on the other hand, the current chairman of the Federal Reserve believes that CBDC should be the responsibility of the Federal Reserve, not private institutions. Among these two points of view, the promoter of the digital dollar suggests that the government should issue digital dollars in cooperation with private institutions. But even if the Federal Reserve issues USD CBDC in the future, there will still be USD CBDC and USD stablecoins co-existing in the market. If there is market demand, the private sector in the United States will still be an active promoter of digital dollar stablecoins.

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At present, there is already a digital dollar stable currency in circulation in the market and is gradually growing. Judging from the current development of Libra, it is very likely that it will be the first to launch the Libra USD stablecoin, so the USD-based digital stablecoin in the market will definitely grow substantially. This will naturally increase the influence of the US dollar in the global market. And this development trend is just beginning. If more American companies like Facebook think it is necessary to issue their own branded digital dollar stablecoins, then they will certainly do the same. From the current development trend in the US market, this possibility is getting stronger and stronger. Recently, payment company PayPal began to cooperate with Pax to provide PayPal users with encrypted digital currency trading services. Pax is the issuer of the PAX USD stable currency and also provides financial market infrastructure services for encrypted digital currencies. PayPal had previously planned to join the Libra Association. It is now adopting another strategy to enter the field of encrypted digital currency, and its next step is very likely to provide payment services based on digital dollar stablecoins.

Judging from the current development of digital stablecoins in the euro area, as well as the attitude of major European countries’ financial regulators, it is unlikely that there will be compliant Euro digital stablecoins operated by private institutions in the market. Therefore, in the field of digital currency, the US dollar is rapidly establishing its advantages over the euro.