CBDCs promise to speed up existing systems but are unlikely to change the direction central banks have already been taking.
As countries around the world dive into central bank digital currencies (CBDC), many in the crypto industry look forward to what that means for adoption and even lucrative partnerships to develop such tokens. However, at least some commentators have noted that national CBDCs will likely disappoint those looking to update monetary policy.
“A change in packaging”
Speaking to Cointelegraph, Ido Sadeh Man and Barry Topf — respectively the founder and chief economist of Saga, a global stablecoin project — cautioned against the wave of optimism surrounding CBDCs.
“It’s basically a change in packaging, a change in technology. A welcome change,” Topf described. “Essentially, it still remains a one-nation or one-entity fiat currency. The value of the currency is determined by the sovereign or group of sovereigns behind it.”
Man agreed, though he described himself as more optimistic than Topf when it comes to CBDCs:
“I think that CBDCs are definitely good news in the sense of easing the payment railways and repackaging in a way that is more suitable to the global economy.”
Saga’s SGA token and a global peg
Saga operates a stablecoin, SGA, that launched in December. It is pegged to special drawing rights. The SDR is a basket of currencies that the International Monetary Fund bases on a varying ratio of dollars, euro, yuan, yen and pounds sterling. However, Man explained, “we are separating slowly from the SDR by lowering the reserve ratio.”
The reduction of reserves would seem to put SGA on track to replicate fiat, but Man says the difference is that SGA’s reserve changes per a mechanism that anyone can access: “When you look at CBDCs, I don’t know of any central bank that is about implementing monetary policy based on a consensus mechanism.”
“The trust we are reaching for should not depend on us being better people than others. It should be systemic,” Man continued to explain. Topf, who spent 13 years at Israel’s central bank, also identified transparency and consensus as SGA’s killer app:
“We sought a monetary model that was more advanced and objective than any central bank could produce. […] Some people look at cryptocurrencies and see a technological innovation. We began working on this looking for a monetary innovation.”
Facebook’s Libra stablecoin similarly looked to a global basket of currencies for backing, but would initially be able to adjust that basket at will. The company ultimately had to back down from this mechanism when U.S. regulators stonewalled the nascent project, largely reasoning that this basket made the coin look suspiciously like a security.
Based in the U.K., SGA did not have to deal with U.S. regulators as early on. It remains unavailable in the U.S. as well as in Israel.