On July 23, the Central Bank (CB) of Lithuania will begin the preliminary sale of national cryptocurrencies (CBDC), which are called LBCOIN. On July 2, the news agency Reuters reported this for the first time . LBCOIN is the first CBDC to go on sale in the EU. How the new digital asset is organized and how the global ecosystem of various CBDCs is developing.
According to Reuters, the Central Bank of Lithuania will issue a total of 24,000 digital tokens based on the NEM blockchain. Portraits of 20 people who signed the Declaration of Independence of Lithuania in 1918 will be placed on new tokens. These historical figures will be divided into six categories, each of which will be assigned its own token: priests, presidents, diplomats, industrialists, scientists, as well as public servants.
That the NEM blockchain will be involved in the LBCOIN circulation, Justinas Baltrusaitis, a BuyShares analyst from Lithuania, confirmed to DeCenter.
The need to launch CBDC
Marius Jurgilas, deputy head of the board of the Bank of Lithuania, in an interview with Reuters emphasized that in his department “ they realized that there is a risk that sooner or later someone will take a leading place in the matter of [launching a national digital currency] ”. The representative of the country's financial regulator also admitted that demand for digital payment methods is growing in Lithuania, and that the Central Bank cannot but respond to this.
Jurgilas noted that LBCOIN is very similar to CBDC and will help Lithuania to take a leading place in the development of digital fiat currencies. During the pre-sale, its participants will be able to buy six LBCOIN tokens for € 99. The regulator expects users to start buying and selling tokens of different categories in order to eventually collect a specific set of LBCOIN. This set can subsequently be exchanged for a Central Bank physical silver coin with a face value of € 19.18. In fact, we are talking about the numismatic market, on the basis of which the Central Bank of Lithuania will test the process of buying and selling national digital currencies.
LBCOIN will be traded both on the Central Bank's blockchain and on private decentralized distributed registries. As Jurgilas noted, such a direct interaction of the owner of LBCOIN tokens with the central bank of the country can become a prototype of how digital finance will work on the blockchain in the future.
Eurozone awaiting its CBDC
The Bank of Lithuania's entry into the CBDC market indicates that competition among central banks in the world is increasing. The Lithuanian financial regulator cannot, within the framework of the commitments made by 19 eurozone countries, introduce its own national coin instead of the euro. However, discussions about how efficiently the European currency contributes to the development of the economies of the union countries are ongoing, and together with the consequences of the coronavirus pandemic, they can gain new relevance. At the same time, demand for the launch of the digital euro is growing - this is what the Italian Banking Association (ABI) said in a statement.
Moreover, on November 26, 2019, Benoit Chur from the Board of the European Central Bank (ECB) made it clear that the euro in its current form does not solve the key problems associated with the low efficiency of cross-border payments. According to Kura, the ECB now has little choice: either the regulator will launch a digital euro, or global stablecoins will take its place. Then it was primarily about the Libra project from Facebook.
In addition, it has now become clear that the digital yuan (a project of the People’s Bank of China) is one step away from the launch and is already undergoing test tests in four cities in China (Shenzhen, Suzhou, Xiongang and Chengdu). But the digital yuan is only part of the overall development of the ecosystem of state digital currencies.
As mentioned above, the Chinese authorities are already developing a regional stablecoin project, which will be launched on the basis of four fiat currencies (Chinese yuan, Japanese yen, South Korean won and Hong Kong dollar) and, accordingly, will operate in the economies of at least four countries.
Two stages in the development of the global CBDC ecosystem
The nature of digital currencies (both private and CBDC) suggests that their circulation environment can potentially be wherever there is Internet access. However, this, of course, creates legal conflicts, and also raises the question of how various financial regulators will react to the fact that national digital currencies are circulating in the economy of their country. Therefore, in this situation, the only effective way for regulators to interact during fundamental changes in the global financial system will be the launch of their own CBDC.
Not surprisingly, on June 16, the Monetary Authority of Singapore (an analogue of the central bank in this country) decided to start work on its own CBDC. And this is a trend: in April, six large central banks also announced joint work on the study and selection of projects for the launch of CBDC. Ravi Menon, Managing Director of the Monetary Authority of Singapore, emphasized that CBDC is a hot topic , and country authorities and various private projects need to work together to launch national and global stablecoins.
The same conclusion can be drawn from a recent study by the Royal Bank of Sweden: the regulator honestly admits that the costs of creating infrastructure for the circulation of the digital crown look too high so far. As a result, the development of the CBDC market can go through two stages:
At the first - a number of central banks are launching their CBDCs, which will eventually be circulated in the economies of other countries;
On the second - in the course of competition between various CBDCs and private stablecoins, either a market leader will spontaneously emerge, or at the initiative of the Bank for International Settlements (BIS), a “super-CBDC” will be created that will appeal to at least 47 economies whose central banks are subordinate to BIS.
US Dollar Under Pressure CBDC
As a result, all state CBDC projects look like global, that is, they can go beyond the framework of national economies. And therefore, they pose risks to the status of the US dollar as the cornerstone of the global financial system, which has existed unchanged since the end of World War II.
So, the former head of the Commodity Futures Trading Commission (CFTC) Christopher Giancarlo back in January of this year during a speech at the WEF said that the United States needs its own CBDC, since the digital yuan can shift the US dollar from its leading position in the global economy. But what do we see?
On June 28, the National Bank of Cambodia unveiled a white paper CBDC Bakong, revealing plans to launch digital currency on the blockchain to reduce transaction costs, increase the reliability and speed of financial transactions. These are already standard reasons for launching CBDC, but statements like those made by the head of Cambodian regulator Siri Chea become no less classic. The expert is confident that CBDC Bakong will allow the US dollar to be squeezed out of both the domestic economy of Cambodia and the country's economic relations with other states. In addition, CBDC Bakong is expected to replace the US dollar in cross-border remittances sent to the Cambodian economy by immigrant citizens.
This is another CBDC along with the digital renminbi, which is designed to de facto create difficulties for the US dollar by reducing the demand for this currency. Do not forget about the current policy of the US Federal Reserve System, which carries out the risky "limitless" issue of the American currency.
The Venezuelan authorities, who launched the El Petro cryptocurrency and are increasingly transferring payments and payments inside the country, are taking a similar position with respect to the US dollar. The authorities also ordered the country's main oil corporation PDVSA to sell raw materials for import precisely for the national cryptocurrency Petro.
Digital and blockchain transformation has already begun
There is no doubt that more and more CBDCs will appear, especially since the Bank for International Settlements, in its recent report, recommended that the world's central banks deal with the issue of issuing such digital assets.
As a result, on June 18, the Bank of Thailand announced that it had created a blockchain infrastructure for its CBDC. The regulator begins to gradually launch the national cryptocurrency in mass circulation, starting with settlements between a key supplier of building materials in the country and its contractors.
Recently, a similar statement was made by Bank of Canada specialists, who revealed that they were working on creating an application with which anyone could pay the future digital Canadian dollar. And the ease of using the new currency should be exactly the same as that of the fiat counterpart.
On June 8, the Bank of Ghana announced that it was continuing to work on a pilot project of its own cryptocurrency. Moreover, the Central Bank is clearly in a hurry, because so far there is no active crypto regulation in the country. This was confirmed by DeCenter at the Office of Financial Technology at the Bank of Ghana.
The possibility of launching CBDC is also being considered at the Central Bank of Japan. Moreover, if such an option was previously considered unclaimed, today analysts are already analyzing the technical parameters necessary to run, and they are also exploring the possible use of distributed registry technology. The development of legal regulations governing the CBDC was announced at the Bank of Korea.
Interestingly, in this situation, the US financial authorities are clearly not in a hurry to enter the struggle for leadership in launching the CBDC. June 17 the head of the US Federal Reserve Jerome Powell at the hearing before the Committee on Financial Services of the House of Representatives , said that he was "still need to understand the device digital currency", but he definitely understands that in any transformation of the global financial system has leading positions for US dollar should to be saved. The June 30 hearings , organized by the Senate Banking and Urban Planning Committee, were entirely devoted to the topic of “Digitalization of Money and Payments,” but also ended with general statements that “the US needs innovation .”
And what is curious: dollar stablecoins are already taking on the role of the digital dollar on an increasingly large scale. So, the issue of the most popular, Tether (USDT), this month increased to $ 9.1 billion, and stablecoin itself entered the top three cryptocurrencies by capitalization in the world. In June, the turnover of all stablecoins in the world reached a historic high of $ 54.9 billion, an increase of 14% compared with May.
And while Washington is slowing down with an obvious step - the launch of its own CBDC - this cannot fundamentally change the process of transformation of the global financial system, which is moving towards an increasingly integrated digital currency on the blockchain.