Bank of France observes stablecoin developments

May 15, 2019, | AtoZ MarketsIn his recent speech in Paris, Francois Villeroy de Galhau the Bank of France governor has made an interesting remark, by saying that not all cryptocurrencies are created equal. In particular, the head of the company outlined, that stable coins are more promising than bitcoins indicating that the company observes stablecoin developments with great interest.

Bank of France aims to adopt stable coins

According to Bloomberg’s report bank’s of France governor Francois Villeroy de Galhau believes that stablecoins “are quite different from speculative assets like bitcoins”. He hinted, that the Bank of France is on the way of possible stable coin introduction to support transaction involving ‘tokenized’ securities or good and services.

The French bankers seem to adopt an example of their American associates JPMorgan Chase & Co who have developed a stable coin to speed up payments between corporate customers.

At the moment, as Galhau noted, the Bank of France is observing initiatives in “the private sector which aim at developing networks within which ‘stable coins’ would be used.

Tokenization- the new technology in the banking systems

According to the meaning in Technopedia, the “tokenization” definition, means the process of breaking up a sequence of strings into pieces called tokens.

When applied to data security, tokenization allows substituting a sensitive data element with a non-sensitive equivalent. In the financial sector, ‘tokenization’ involves the transformation of real-world assets, like debt or real estate, into digital contracts that use blockchain technology. Certain financial institutions have already tried to introduce the ‘tokenization’ technology in their services.

In February 2019 the German banking and financial services company Commerzbank and the technology corporations Continental and Siemens completed the first transaction using blockchain technology. In April 2019 French investment bank Societe Generale SFH issued 100-million euros ($112 million) of tokenized bonds on the Ethereum blockchain. The company announced issuing a tokenized bond to test a more efficient process for bond issuance.

The financial institutions’ officials criticize bitcoin

Francois Villeroy de Galhau the French bank’s governor is known as an outspoken critic of bitcoin. In 2017 at a conference in Beijing, China, Galhau stated, that bitcoin is “no way a currency or even cryptocurrency” and called the crypto a “speculative asset”. The head of the company noted then, that bitcoin “value and extreme volatility have no economic basis, and they are nobody’s responsibility.”

“The Bank of France reminds those investing in bitcoin that they do so entirely at their own risk,” Francois Villeroy de Galhau concluded.

Mario Draghi, the President of the European Central Bank (ECB) — of which Villeroy is a governing council member called cryptocurrency “a risky asset”, echoing  Francois Villeroy de Galhau aforementioned sentiments. Draghi points to the lack of backing for tokens such as bitcoin, rhetorically asking, “Who is behind the cryptocurrencies?”

Stablecoins are better than cryptos?

Stablecoins include tether (USDT), true USD (TUSD), Gemini dollar (GUSD), and USD coin by Circle and Coinbase (USDC). Demand for such coins has been growing as most of the investors use Tether (USDT), TrueUSD (TUSD) and Gemini Dollar (GUSD) to keep the assets during high volatility and bearish market times. The total number of stablecoins in circulation is backed by assets held in reserve. Stablecoins has the same benefits as other cryptocurrencies like cheaper transactions and rapid settlement but with low or “near to zero” price volatility which usually found in the crypto markets.

Stability is a major concern for stablecoin and the value of any market resource is changing based on the demand. When volatility is up or inflation increases, the demand for the stable asset would increase, and when volatility is decreasing and there is no threat of inflation, thus the demand for stability goes down.

The crypto market forces make stablecoins more stable, it regulates its supply and makes such assets productive. There hasn’t been much discussion in the crypto industry about how regulations might apply to the stablecoins.

As a result, most industry players seem to take for granted that stablecoins are safe from regulatory scrutiny. However, this assumption may prove dangerous for the crypto industry.

If stablecoins are classified as regulated securities, there might be serious consequences for the crypto industry.

For example, stablecoin companies might have to register their offerings and follow all the ensuing regulatory requirements. Similarly, a company that facilitates stablecoin transactions might have to register as a broker-dealer.

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