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The central banks of Iran and Russia are said to be holding talks on the creation of a new stablecoin for international payments. This digital currency could be backed by gold and provide an alternative to the dollar. That's what the Russian financial newspaper writes Vedomosti. What does this mean for the future of international payments?
Vedomosti bases itself on statements made by Alexander Brazhnikov, head of the Russian Association of the Crypto Industry and Blockchain. According to him, the stablecoin would be used for the first time in the Astrakhan special economic zone in southern Russia, on the trade route to Iran and the Middle East.
Anton Tkachev, a member of the State Duma of Russia and of the Committee of Information Technology and Communications, confirmed that talks about a stablecoin are taking place. He added that the topic will not be discussed at the state level until the regulation of cryptocurrencies is in Russia time. However, it is still unclear how this gold backing will work in practice.
A stablecoin uses blockchain technology of cryptocurrencies to make secure and fast online transactions. By combining this with safe collateral, this crypto coin can have a stable price. There are already several stablecoins backed by official currencies such as the dollar, as well as cryptocurrencies backed by gold.
PAX Gold, the largest gold-backed cryptocurrency, has a market value of over $500 million. This puts this stablecoin in 74th place in the Ranking of all crypto coins. The total market value of all stablecoins in the world is currently $145 billion, about 15% of the total market of all crypto coins.
In principle, stablecoins are not intended as an investment, but as an alternative means of payment. They are already widely used in cryptocurrency exchanges exchanges, but rarely for payments in the real economy. That could change in the future, as the technology makes it possible to circumvent financial and economic sanctions, for example.
Banks can block payments to certain countries, companies and individuals in order to comply with legally imposed sanctions. But that is not possible with payments in cryptocurrencies, because they take place digitally and without the intervention of banks. And that makes the technology interesting for an ever-growing group of countries that want to make themselves less dependent on the dollar.
The United States has regularly used the dollar as a political weapon in recent years, for example by denying countries access to American banks or international payment systems. In doing so, it can isolate a country economically and put pressure on it. Consider, for example, the sanctions against countries such as Iran, Venezuela, but also Russia.
Iran knows what it's like to live with economic sanctions, because the country has already been cut off from international payments. And last year, Russia faced similar sanctions, such as shutting down the SWIFT. This is an international system that banks worldwide use to send payment orders to each other. The U.S., along with European countries, also blocked Russia's currency reserves, a violation of international agreements that Putin says have undermined confidence in the euro and dollar.
It is therefore not surprising that these countries are looking for alternatives to the use of dollars in international payments. For example, Iran already conducted a test in August last year in which $10 million worth of imported goods were seized. were settled in cryptocurrencies. Iran Legalized the use of cryptocurrencies by providing licenses to certain parties, but prohibits their use by individuals.
A year ago Advised the Russian central bank in a report to restrict the use and mining of cryptocurrencies. Cryptocurrencies are said to pose a risk to financial stability. Also, according to the central bank, many people could fall victim to scams. The Russian central bank would therefore have to make a U-turn in its policy.
Another route is that countries will not pay each other with a stablecoin, but with digital central bank money. Both Russia and Iran are already working on a so-called Central Bank Digital Currency (CBDC), which they can also use for international payments. Central banks will probably prefer this to a stablecoin, because it allows them to stay in control.
In a sense, a CBDC also has 'backing' by gold, because a central bank that puts this digital money into circulation often also has a gold supply. There is no direct link, but there is collateral in the form of gold. So the question is which route central banks will take. Will they go for (gold-backed) stablecoins or CBDCs as an alternative to the dollar system?
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