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ECB STUDY: US MONETARY POLICY HAS BIGGEST IMPACT ON STABLECOIN MARKET CAP
In an important speech today, European Central Bank (ECB) director Piero Cipollone proposed the creation of a European ledger, the EU’s version of the Unified Ledger, to support tokenization in the capital markets. He noted the challenges in creating a conventional Capital Markets Union, including the need for greater legal harmonization.
The Director highlighted some risks in moving towards digital assets and distributed ledger technology (DLT). But rather than viewing tokenization as a threat, he said the EU should embrace the clean sheet opportunity to create a Digital Capital Markets Union. He was speaking at a Bundesbank Symposium.
A European Ledger
“A European ledger could bring together token versions of central bank money, commercial bank money and other digital assets on a shared, programmable platform,” said Mr Cipollone. “In essence, this would see T2S evolving into a DLT-based, single financial market infrastructure for Europe.
While central banks would provide the platform, or the ‘rails’ so to speak, market participants would supply the content, or the ‘trains’.” T2S refers to the EU high value payment system used for the settlement of securities transactions in central bank money.
Since May, the European Central Bank has been coordinating the Eurosystem’s DLT trials for wholesale settlement using central bank money. With 60 private sector organizations taking part, it can see the level of interest and engagement.
While the EU’s DLT Pilot Regime, which relaxes some of the current EU laws, has not been embraced by incumbents, the first startups are likely to be approved soon.
A key driver behind the likely launch of the retail digital euro is the loss of sovereignty over payment systems to the likes of Visa and Mastercard. The same motivation applies to the capital markets.
“If we drag our feet while other jurisdictions move faster and produce better solutions, we could see financial activities migrating elsewhere and private entities from outside the EU assuming a dominant position in European capital markets,” said Mr Cipollone.
Talking about the potential for tokenization and DLT, he said, “These technologies do not just have the potential to enhance efficiency. They could also fundamentally reshape the very structure of financial intermediation – a system that has remained largely unchanged for centuries.”
The risks of a failure to act
The Director outlined three potential risks of the move toward the tokenization of financial markets. He noted that to date, many institutional initiatives have focused on issuance, especially digital bonds. The proliferation of issuance platforms has already highlighted increasing fragmentation, more so than the current fragmentation between separate central securities depositories (CSDs). A coordinated approach could prevent this fragmentation.
Secondly, institutions want to use cash on chain. If there’s no central bank cash available, then they will use tokenized deposits of stablecoins.
The third risk is more about the unknown. Tokenized securities carry the risks inherent in securities, but there will be new risks. Some risks depend on the settlement asset. He mentioned liquidity risks without specifically referring to a settlement asset backed by money market funds, that could create heightened volatility during turbulent market periods.
The central banks’ role is to ensure the continued, and perhaps increased role of central bank money and to promote “robust, stable and integrated” capital markets.
Mr Cipollone mentioned the challenge of choosing a technical direction. By adopting a single technology, this will discourage exploration of other technologies during a period of innovation. Hence, the alternative is to encourage interoperability between diverse networks, including existing ones. This is a more flexible approach, although we’d observe it will sacrifice some efficiencies.
DLT trial extension?
In terms of concrete actions, following the settlement trials ending next month, the ECB and Eurosystem are exploring how it can build on that. That implies either extending the timeframe or making some or all solutions permanent.
Additionally, it plans to explore allowing DLT-based assets to be used as collateral in the Eurosystem. We’d note that the Swiss National Bank extended its wholesale CBDC trial by two years and already accepts DLT-based collateral.
The director said some interoperability systems are considered a stop gap towards migrating to the longer term vision. This might be a nod to the use of the Trigger solution in the current settlement trials. Instead of providing a digital currency, the Trigger solution links DLTs to the conventional T2S settlement system.
“In embracing this technological shift, we are not merely reacting to change, but actively participating in shaping a more efficient, innovative and resilient financial future for Europe,” Mr Cipollone concluded.
@ Newshounds News™
Source: Ledger Insights
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BRICS NEWS: BRICS EYES ‘PETROYUAN’ TO CHALLENGE DOLLAR DOMINANCE AHEAD OF KEY SUMMIT
▪️BRICS is considering using the Chinese yuan for oil payments to reduce reliance on the U.S. dollar.
▪️Saudi Arabia is open to trading oil in yuan, though it prioritizes keeping politics out of commerce.
The BRICS alliance, comprising Brazil, Russia, India, China, and South Africa, is reportedly exploring the potential introduction of a “petroyuan” to rival the dollar’s dominance in the global oil trade.
This is expected to be taken up at the next BRICS summit in Kazan, Russia, to establish an alternative to oil payments in dollars using the yuan.
This comes after the biggest oil exporting nation in the world, Saudi Arabia, showed interest in pricing oil in yuan, which is a major blow to the petrodollar system.
Traditionally, the country has sold its oil in US dollars but has expressed interest in diversifying its trade basket per current international financial practices. Russia is also interested in the petroyuan, as Moscow aims to decrease the use of the US dollar and facilitate transactions through SWIFT.
Following its exclusion from SWIFT in 2022 due to the conflict in Ukraine, Russia has been exploring alternative methods for international financial transactions.
OMFIF Report Highlights Petroyuan Adoption Challenges
While the idea of a petroyuan presents opportunities for the BRICS nations, challenges remain. A recent report from the Official Monetary and Financial Institutions Forum (OMFIF) identified several challenges many countries may face when adopting a yuan-based oil payment system.
A limitation is that surpluses from oil revenues can only be used to purchase goods from China or stored in foreign currencies. This means that BRICS financial intermediaries would be forced to transfer the yuan to other countries in need.
Chinese banks stand to benefit most from this system, earning profits by managing these surpluses. Other Western financial institutions may also participate, given the possibility of making profits from differences between oil prices in dollars and yuan. However, adopting the petroyuan can further hinder the development of the global payment system.
However, Saudi officials have stated that politics will have no role. Bandar Al-khorayef, Saudi Arabia’s minister of industry and mineral resources, pointed out that while the country is willing to consider the use of new instruments in trade, such as the petroyuan, it will not mix politics with business.
The BRICS nations are also considering the creation of their own currency for trade within the alliance, with some reports suggesting it may be backed by gold.
IMF Analysis Reveals BRICS Outperforms G7
As highlighted by Crypto News Flash, President Putin recently spoke about the creation of the BRICS pay, a blockchain-based payment system. The system is intended to support foreign trade operations and transactions not involving Western financial systems.
Crypto News Flash recently reported that, based on the IMF’s analysis, BRICS has outperformed the G7 in several key metrics. Notably, BRICS has emerged as the leading producer of oil imports.
The group accounts for 41% of the world’s oil production, a figure higher than the G7’s 29%. Also, BRICS has the largest population share in the global population, accounting for 45% of the global population, while the G7 countries account for only 30% of the global population.
Moreover, the BRICS countries have now reported 32% of the world GDP while the G7 has reported 29%, which shows the growth of developing countries.
@ Newshounds News™
Source: Crypto News Flash
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WHICH COUNTRIES ARE WINNING THE CRYPTO RACE? | YOUTUBE
@ Newshounds News™
Source: Seeds of Wisdom Team RV Currency Facts
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