As the cryptocurrency market plunges, a paper from the International Monetary Fund provides some succor for traders. This report was released on the July 15 and is titled, “The Rise of Digital Money.” It suggests that cash and bank deposits would be left behind soon as stablecoins see greater adoption. It also provides some backing for XRP’s goal to achieve mass adoption and reach the unbanked and underbanked.
XRP (XRP) Price Today – XRP / USD
What are Stablecoins?
Stablecoins are cryptocurrencies which are collateralized to the value of underlying assets. This means it is tied to underlying assets and this makes it less volatile. Most stablecoins are pegged at a 1:1 ratio with fiat currencies. Some common currencies are the Euro and USD. Some other stablecoins are pegged to precious metals like diamond, gold and other cryptocurrencies as well.
The Competition Between Tech Firms and Banks
This new paper from the IMF looks at how such tech firms are competing with credit card companies and major banks. It warns that, in the end, bank deposits and cash will have to deal with tough competition and may be surpassed by the other forms of value transfer.
Electronic forms of money such as stablecoins may serve as more convenient payment methods. However, the authors question the stability of their value. According to the paper, it was compared to a private investment fund which guarantees redemption at face value. If ten euros is invested, then ten euros must come out. The issuer is expected to honor the pledge.
Banks May Fight Back
Banks should stage a fightback when such payments gain mainstream adoption. They may start to offer similar electronic money products or better services to compete. Still, the disruption in the banking sector should be expected and banks may not lose out entirely. The institutions will adapt and other firms offering new payment options may also become banks and use the data advantage they have to offer targeted credit services.
Also, the paper covers the different kinds of money payment mechanism which include i-money and e-money. I-money is equivalent to e-money but is quite different as it offers variable value redemptions. This makes it more like an equity.
One popular example of i-money is Libra, the Facebook cryptocurrency project. This crypto is expected to be a stablecoin which is pegged to some fiat currencies as well as government bond.
When it comes to regulation, the central banks have the crucial role of shaping the future of e-money. It will do so by setting rules to influence the adoption as well as the exertion of pressure on commercial banks.
The paper goes on to propose a different public-private solution which it called CBDC. This solution would allow the central bank to offer settlement services to the e-money providers. This also includes access to reserves of the central bank. The other functions would be the sole responsibility of the private e-money providers.
The paper proposes that this model would be cheaper and less risky. It would also allow the private sector to interact with customers and innovate while the central bank plays the role of bringing trust and efficiency.
What Does This Mean For XRP?
XRP aims to reach the unbanked and underbanked and its parent company, Ripple is instrumental to this plan. This news could mean that the coin is closer to mass adoption now than ever before. Christine Lagarde, the outgoing Managing Director of the IMF has also shown support for blockchain technology in the past. She mentioned Ripple in her interview with CNBC earlier in the year.
XRP is trading at $0.315163 at press time.