Despite all the hype in crypto or central banking digital currencies, BNY Mellon believes the future of virtual money lies in stablecoins.
While markets are increasingly focused on Bitcoin price movements while authorities are broadly discrediting crypto while pushing electronic money from central banks, a recent white paper by BNY Mellon indicates that immediate growth for digital currencies will unlikely be found in either space.
«With cryptocurrencies representing an unproven, unstable and largely unaccepted form of payment, and with the introduction of most [central bank digital currencies] still a long way off, stablecoins would seem to have the most immediate potential to transform and modernize the interbank payments space,» according to the white paper on payment innovations.
Three Main Uses
BNY Mellon highlighted three key areas it believes stablecoins could deliver immediate value: cross-currency FX swaps, securities settlement and, possibly, even cross-border payments.
On cross-currency FX swaps, for example, the report noted how cutoff times for trading in different time zones can require funds to be sent in very early in order for the transaction to complete in the same day. With a tokenized model, the bank could execute the same saw later on in the day using a digital currency with the funds transferred and exchanged almost immediately, assuming a counterparty has already been found.
And on securities settlement, the report called the potential usage of stablecoins «groundbreaking» as this could significantly reduce settlement risk, counterparty credit risk, capital costs and reconciliation efforts.
Correspondent Banking
While cross-border transactions pose greater complexity due to the various market requirements that need to be fulfilled, the report is also optimistic about its future with stablecoins.
Not dissimilar to other areas in payment, the involvement of numerous parties currently leads to multiple costs, multiple risks and multiple days to complete a transaction.
«Though correspondent banking as we know it today will not be going anywhere soon, with numerous developments working to improve upon the current model, stablecoins are one option that have the potential to change the cross-border transactions of tomorrow,» the report added.
