JPMorgan: Stablecoins, Such As Libra, Have ‘Potential to Grow Substantially’

Analysts at U.S. financial services giant JPMorgan Chase (reportedly) said, in a note to clients on Thursday (September 5), that stablecoins "have the potential to grow substantially" but there is the risk of "payment system gridlock, particularly during periods of stress." They also had special concerns regarding Libra.

According to a report in Bloomberg published on 5 September 2019, the JPMorgan analysts said that although the total reported market cap for all stablecoins is under $5 billion, these low-volatility altcoins are destined for fast growth, especially Libra, Facebook's proposed cryptocurrency. However, the analysts warned that there is the risk that they might grow too fast and get subjected to bottlenecks since they do not have sufficient short-term liquidity (which is a feature of other payment systems):

Stablecoins, and Libra in particular, have the potential to grow substantially and ultimately shoulder a significant fraction of global transactional activity. However, as currently designed and proposed, they do not take into account the microstructure of operating such a payment system. The risk of payment system gridlock, particularly during periods of stress, could have serious macroeconomic consequences.

And with regard to Libra, they pointed out that there is also the risk of negative yields:

Any system that relies on reserve-asset income to fund operational and other ongoing costs becomes unstable in a negative yield world. With more than half of high-quality short-term sovereign debt already negative, the vast majority of the remainder made up of U.S. government securities, and trends pointing towards global monetary easing, a fully negative yielding Libra reserve has become a plausible (some would argue likely) risk.

 

China’s Central Bank to Test Its Digital Currency With Commercial Banks, Telecom Firms: Repot

Francisco Memoria

The People’s Bank of China (PBoC), China’s central bank, is reportedly looking to test its digital currency, dubbed digital currency electronic payment (DCEP), later this year with the help of commercial banks and telecommunications firms.

According to a report published by Chinese financial news source Caijing, the central bank is set to test the digital yuan in the cities of Shenzhen and Suzhou with the help of its “big four,” which are the Bank of China, the China Construction Bank, the Agricultural Bank of China, and the Industrial and Commercial Bank of China.

The digital currency’s tests will also see three telecommunications firms – China Telecom, China Mobile, and China Unicom – cooperate. During the test the DCEP is set to be applied in real-world scenarios such as transportation, healthcare, and education.

There will be two pilot phases, with the first one set to take place before the end of this year on a small scale. The second one is reportedly going to be a large-scale effort in Shenzhen, and if it goes well the DCEP could go live soon after.

The People’s Bank of China is believed to have been hastening efforts to develop its digital currency partly because of the Facebook-led Libra cryptocurrency’s announcement. Libra is set to be backed by a basket of currencies and short-term U.S. Treasury bonds

As CryptoGlobe covered the digital currency will, according to a PBoC official, provide its users with “controlled anonymity.” Chinese officials have also made it clear the currency’s holders won’t receive interest payments.

Featured image via Pixabay.