(Crypto)currency Wars: Corporate Coins Wage a Global Arms Race

by Rachel McIntosh
  • Are governments waging economic battles through corporate stablecoins?
(Crypto)currency Wars: Corporate Coins Wage a Global Arms Race

Just a couple of years ago, there were only a handful of stablecoins on the market--small, seemingly relatively ineffectual; they stood as an important part of the cryptocurrency industry but had little or no meaning outside of it.

Flash forward to today. After explosive growth in both the number of stablecoins and their trading volumes, stablecoins are slated to be the ultimate Bridge between the cryptocurrency world and mainstream financial spheres.

This is demonstrated by a number of central banks’ interest in developing their own stablecoins, as well as the fact that a number of non-crypto mega-corporations have begun dipping their toes into the stablecoin pool: Facebook, Russian social media giant VKontakte, Japanese banking giant Mizuho, Walmart--the list goes on and on.

For each of these proposed projects, many important questions must be answered--what is the purpose of these projects? Will they exist within a closed or an open system? Will they only be available to the company’s pre-existing users? Will they be geographically limited, or will these stablecoins make it possible to send and receive money from anywhere in the world?

On the flip side: would a stablecoin issued by a company based in one country (the US, let’s say) be allowed to access capital markets and users in countries that it may have political tensions with (Russia or China, for example)?

And if, perhaps, these stablecoins would be allowed to compete for users freely, regardless of political tensions--which of them would “win”? And moreover, why does it really matter?

Fiat-pegged “Corporate Stablecoins” can act as covert vehicles for national currencies

These Corporate Stablecoins could hold a particularly large amount of power if a company’s users or customers were properly incentivized to transact with them--and with the right kinds of “pegging” mechanisms, this power could directly feed into the strength of a country’s national currency.

For example, let’s say that Huawei issued a digital currency that was pegged to the Chinese Renminbi (RMB). If global users of Huawei’s mobile services received a discount for paying for their services with Huawei’s coin, an entirely new group of people could be indirectly transacting with Renminbi without even consciously realizing it; thus, the RMB would grow stronger through the use of Huawei’s coin.

By the same turn, individuals and companies that transact with a stablecoin pegged to a fiat currency other than the one issued by their own government may incidentally weaken their own nation’s currency. For example, if a large number of Russian users were properly incentivized to use a USD-pegged stablecoin, they could indirectly be weakening the Ruble in favor of the dollar.

Corporate Stablecoins could also bring undesirable political and cultural influence

Even if these Corporate Stablecoins aren’t directly tied to a single currency, the cultural and political influence that they might bring with them could be unsavory to certain governments.

After all, there are often close ties between governments and mega-corporations: for example, alleged connections between Google and the US government--connections that have contributed to bans on Google in certain countries.

One of these countries in China. Google and Facebook have already been banned within the country for several years. Therefore, there has been quite a bit of speculation that although Libra will not be solely pegged to the US dollar, there is still a chance that the Chinese government may not allow its citizens to use the network (if, indeed, it ever launches.)

China could soon enter the ring with its own corporately- or nationally-issued stablecoin

Regardless of whether Libra will or won’t be allowed for use in China, the Chinese government seems to recognize the threat that something like Libra could pose to its economy--and the opportunities that creating a competitor for Libra could hold.

Indeed, the announcement that Facebook would be attempting to launch its own stablecoin prompted China to pump new life into the stablecoin project that the People’s Bank of China (PBoC) has been slowly developing for years.

In fact, Nicholas Krapels, Blockchain Lead at Konstellation.tech, is confident that “China will be the first central bank to launch a CBDC (central bank digital currency).”

Nicholas Krapels, Blockchain Lead at Konstellation.tech.

“They've been researching it for years. They have a Digital Currency Research Institute and a wholly-owned company called Shenzhen Fintech Limited doing research on it. They have a bunch of patents for it,” he explained.

“The Chinese economy is already virtually cashless, so it's only a matter of time. I'd say either the CBDC or a CSC (corporate stablecoin) or both gets released before Libra does.”

Indeed, there has been some speculation that the Chinese government may allow a Chinese company to issue a competitor for Libra. One CEO seems to be keen on the idea of China-born stablecoin: Huawei’s Ren Zhengfei remarked in a recent interview with L’Economia that “even China is able to issue such currencies, why wait for Libra? The strength of a state is greater than that of an Internet company.”

And indeed, the state of a state combined with the strength of an internet company is even greater--while Huawei isn’t explicitly controlled by the Chinese government, close ties have been identified between the company and the Chinese government; most recently, the US government has moved toward a ban on Huawei products after accusing the company of espionage and stealing intellectual property.

The potential future of Corporate Stablecoins in China

Krapels’ money, however, is on Ant Financial, the owner of AliPay.

“The Chinese government forced this company out of the Alibaba Group holding structure because they correctly realized that it would be against their national interests for an innovative fintech startup, perhaps THE most innovative fintech startup (after all, it is already valued at more than Goldman Sachs) that is virtually rewriting the rules of e-commerce and digital money to be owned by non-Chinese (Japan's Softbank and the US's Yahoo),” he said.

“Significant Ant Financial stakes are held by all of the Big Four state-owned banks as well as the sovereign wealth funds. I don't see how Huawei trumps that,” Krapels continued, “But hey! Who knows? A little domestic competition could be good. After all, we have no idea how a CSC will affect consumer buying patterns, investments, etc.”

“Probably there will be more room for a few of these CSC's in any given economic region. Maybe Shanghai and Hangzhou are where AliCoin starts to gain a base market share. Huawei teams up with their Guangdong neighbor Tencent to do one that forms a base in Southern China. That would be my best guess.”

In any case, a Chinese stablecoin would almost definitely face some regulatory limitations in terms of capital outflow--Krapels also pointed to the possibility that a corporate stablecoin could even contribute to the Chinese government’s efforts to keep a close eye on money going out of the country.

“Definitely, any potential China CSC would not be allowed to subvert existing capital controls,” he said.

“It's a little more complicated than this, but basically it is $50k USD of remittances out for anyone holding a Chinese ID card and more and more the authorities are looking into the reasoning of these remittances.”

“You used to [be able to] just put ‘study’ or ‘travel’... Now authorities are drilling down to see why exactly you need $50k to do that! I think these developments in China would be more about enforcing these capital controls (KYC wallets, digitally verified provenance of currency and assets, etc.) than trying to enable easier capital outflows.”

When it comes to stablecoins in the US, Walmart may succeed where Facebook may fail

So, if China is pushing ahead with its own CBDC or Corporate Stablecoin, other parts of the world had better take note--particularly, other major world powers, like the US.

After all, if Libra doesn’t manage to pass through the regulatory gauntlet (which, perhaps, it shouldn’t), and a Chinese CBDC or Corporate Stablecoin does, the US could find itself at a disadvantage; even if Libra does manage to come to fruition, the currency is set to be pegged to a “basket” of fiat currencies, and will be based in the EU.

But there are some signs that other US mega-corporations may be entering the ring. Late last week, US retail giant Walmart filed a patent for a stablecoin of its own--the first major US-based company besides Facebook to show demonstrated interest in launching such a product.

Depending on how you look at it, the timing of the filing is either ingenious or unfortunate--Walmart could either have an opportunity to learn from Facebook’s mistakes in the potential launch of its own coin, or it could be caught in the wake of the regulatory backlash against mega-corporations issuing their own currencies.

But Walmart--although it does have its fair share of image problems--does not have a reputation for data theft and privacy invasion that Facebook does.

“I'm really waiting to see what Walmart does with their proposed stablecoin,” Krapels said. “This is a company from the Heart of America, a true epitome of the American Dream, not some evil Silicon Valley geek corp like Facebook, that is proposing this high-tech concept that is hard-to-understand for many of the hoi polloi.”

“If Walmart keeps pushing this, it could receive a much warmer reception by regulators. Yeah, maybe because FB has primed them to be ready for such a thing, but also because a WalmartCoin just seems like a much more palatable concept.”

Additionally, “Walmart already has a pretty robust financial infrastructure with numerous in-store MoneyGram and Coinstar outlets that are already specifically purposed to ‘banking the unbanked,’” Krapels pointed outside.

“Walmart [also] has 2m+ employess that could potentially be paid every 2 weeks, [and] for the vast majority of America, Walmart is THE place to shop... for everything. Domestic revenue was $332B last year (up 50% since the 2008 financial crisis), while international revenues have remained flat for almost a decade at ~ $120B.”

“For mainstreaming bitcoin and its alt brothers, the WalmartCoin seems to me to be a much bigger deal, if it ever moves past the concept stage.”

A Russian cryptocurrency could be used for surveillance and evading sanctions

Even if Walmart coin doesn’t move past the concept stage, it seems--as it does in China--that it will only be a matter of time before US mega-corporations will begin issuing their own stablecoins--whether they be retail giants like Walmart, tech giants like Facebook or Apple, or financial institutions like Bank of America; JPMorgan Chase has already issued its own stablecoin for internal operations.

But if the phrase “what’s good for the goose is good for the gander” can be applied to major world powers, the inevitable of CBDCs and Corporate Stablecoins in China and the US is also present in Russia.

After all, the Russian government has been exploring the creation of the so-called “CryptoRuble” for the last several years.

Analysts have speculated that Russia’s reasons for doing this may include the ability to increase the government’s ability to surveil its constituents. After all, transactions on a digital currency network can easily be traced to their senders and receivers, given that the proper protocol is in place (and it would be.)

Additionally, the CryptoRuble could also be used to circumvent international law-- Sergei Glazev, an economic advisor to Russian President Vladimir Putin, said in early 2018 that “this instrument suits us very well for sensitive activity on behalf of the state. We can settle accounts with our counterparties all over the world with no regard for sanctions.”

Regardless of its eventual uses, the CryptoRuble is slated to be on the markets within the next 2-3 years. But a Russian company may be allowed to beat the country’s central bank to the punch--Russian social media giant VKontake (VK) is also reportedly exploring the possibility of launching its own cryptocurrency.

Who will win the (crypto)currency war?

So, which of these stablecoins could “win” the war for users--and thus, for global power?

Krapels explained that while there may be a clear leader, there will always be some competition in the market: “I doubt there will be one GlobalCoin (as Libra was first called),” he said. “There will just be too much competition in that space.”

“I think that if world regulators eventually accept this Corporate Stablecoin concept (and there's no guarantee that it ever will because minting money is one of the sources of power for any government) then we will see these Corporate Stablecoins dominate their industry vertical or their particular region,” he said.

Ultimately, though, Krapels explained that the key lies in on- and off-ramping options. “The easy answer is competition should be based on how these products interact with CBDC (if any) and bitcoin,” he said.

“As with crypto exchanges, the key differentiator often comes down to fiat onramps. If that's the case, the CSC with more buy-in from their own local government (and others) wins.”

For example, “if ‘AliCoin operates in a country where it is easy to swap into a CBDC and then that money can be spent freely on phones everywhere in the country, then it will dominate that country. However, it will not have this built-in advantage when it goes outside of mainland China."

"That's where I think the ability to swap into bitcoin will become very important in other countries," he added. "Especially those that are a long way from having a CBDC.”

Just a couple of years ago, there were only a handful of stablecoins on the market--small, seemingly relatively ineffectual; they stood as an important part of the cryptocurrency industry but had little or no meaning outside of it.

Flash forward to today. After explosive growth in both the number of stablecoins and their trading volumes, stablecoins are slated to be the ultimate Bridge between the cryptocurrency world and mainstream financial spheres.

This is demonstrated by a number of central banks’ interest in developing their own stablecoins, as well as the fact that a number of non-crypto mega-corporations have begun dipping their toes into the stablecoin pool: Facebook, Russian social media giant VKontakte, Japanese banking giant Mizuho, Walmart--the list goes on and on.

For each of these proposed projects, many important questions must be answered--what is the purpose of these projects? Will they exist within a closed or an open system? Will they only be available to the company’s pre-existing users? Will they be geographically limited, or will these stablecoins make it possible to send and receive money from anywhere in the world?

On the flip side: would a stablecoin issued by a company based in one country (the US, let’s say) be allowed to access capital markets and users in countries that it may have political tensions with (Russia or China, for example)?

And if, perhaps, these stablecoins would be allowed to compete for users freely, regardless of political tensions--which of them would “win”? And moreover, why does it really matter?

Fiat-pegged “Corporate Stablecoins” can act as covert vehicles for national currencies

These Corporate Stablecoins could hold a particularly large amount of power if a company’s users or customers were properly incentivized to transact with them--and with the right kinds of “pegging” mechanisms, this power could directly feed into the strength of a country’s national currency.

For example, let’s say that Huawei issued a digital currency that was pegged to the Chinese Renminbi (RMB). If global users of Huawei’s mobile services received a discount for paying for their services with Huawei’s coin, an entirely new group of people could be indirectly transacting with Renminbi without even consciously realizing it; thus, the RMB would grow stronger through the use of Huawei’s coin.

By the same turn, individuals and companies that transact with a stablecoin pegged to a fiat currency other than the one issued by their own government may incidentally weaken their own nation’s currency. For example, if a large number of Russian users were properly incentivized to use a USD-pegged stablecoin, they could indirectly be weakening the Ruble in favor of the dollar.

Corporate Stablecoins could also bring undesirable political and cultural influence

Even if these Corporate Stablecoins aren’t directly tied to a single currency, the cultural and political influence that they might bring with them could be unsavory to certain governments.

After all, there are often close ties between governments and mega-corporations: for example, alleged connections between Google and the US government--connections that have contributed to bans on Google in certain countries.

One of these countries in China. Google and Facebook have already been banned within the country for several years. Therefore, there has been quite a bit of speculation that although Libra will not be solely pegged to the US dollar, there is still a chance that the Chinese government may not allow its citizens to use the network (if, indeed, it ever launches.)

China could soon enter the ring with its own corporately- or nationally-issued stablecoin

Regardless of whether Libra will or won’t be allowed for use in China, the Chinese government seems to recognize the threat that something like Libra could pose to its economy--and the opportunities that creating a competitor for Libra could hold.

Indeed, the announcement that Facebook would be attempting to launch its own stablecoin prompted China to pump new life into the stablecoin project that the People’s Bank of China (PBoC) has been slowly developing for years.

In fact, Nicholas Krapels, Blockchain Lead at Konstellation.tech, is confident that “China will be the first central bank to launch a CBDC (central bank digital currency).”

Nicholas Krapels, Blockchain Lead at Konstellation.tech.

“They've been researching it for years. They have a Digital Currency Research Institute and a wholly-owned company called Shenzhen Fintech Limited doing research on it. They have a bunch of patents for it,” he explained.

“The Chinese economy is already virtually cashless, so it's only a matter of time. I'd say either the CBDC or a CSC (corporate stablecoin) or both gets released before Libra does.”

Indeed, there has been some speculation that the Chinese government may allow a Chinese company to issue a competitor for Libra. One CEO seems to be keen on the idea of China-born stablecoin: Huawei’s Ren Zhengfei remarked in a recent interview with L’Economia that “even China is able to issue such currencies, why wait for Libra? The strength of a state is greater than that of an Internet company.”

And indeed, the state of a state combined with the strength of an internet company is even greater--while Huawei isn’t explicitly controlled by the Chinese government, close ties have been identified between the company and the Chinese government; most recently, the US government has moved toward a ban on Huawei products after accusing the company of espionage and stealing intellectual property.

The potential future of Corporate Stablecoins in China

Krapels’ money, however, is on Ant Financial, the owner of AliPay.

“The Chinese government forced this company out of the Alibaba Group holding structure because they correctly realized that it would be against their national interests for an innovative fintech startup, perhaps THE most innovative fintech startup (after all, it is already valued at more than Goldman Sachs) that is virtually rewriting the rules of e-commerce and digital money to be owned by non-Chinese (Japan's Softbank and the US's Yahoo),” he said.

“Significant Ant Financial stakes are held by all of the Big Four state-owned banks as well as the sovereign wealth funds. I don't see how Huawei trumps that,” Krapels continued, “But hey! Who knows? A little domestic competition could be good. After all, we have no idea how a CSC will affect consumer buying patterns, investments, etc.”

“Probably there will be more room for a few of these CSC's in any given economic region. Maybe Shanghai and Hangzhou are where AliCoin starts to gain a base market share. Huawei teams up with their Guangdong neighbor Tencent to do one that forms a base in Southern China. That would be my best guess.”

In any case, a Chinese stablecoin would almost definitely face some regulatory limitations in terms of capital outflow--Krapels also pointed to the possibility that a corporate stablecoin could even contribute to the Chinese government’s efforts to keep a close eye on money going out of the country.

“Definitely, any potential China CSC would not be allowed to subvert existing capital controls,” he said.

“It's a little more complicated than this, but basically it is $50k USD of remittances out for anyone holding a Chinese ID card and more and more the authorities are looking into the reasoning of these remittances.”

“You used to [be able to] just put ‘study’ or ‘travel’... Now authorities are drilling down to see why exactly you need $50k to do that! I think these developments in China would be more about enforcing these capital controls (KYC wallets, digitally verified provenance of currency and assets, etc.) than trying to enable easier capital outflows.”

When it comes to stablecoins in the US, Walmart may succeed where Facebook may fail

So, if China is pushing ahead with its own CBDC or Corporate Stablecoin, other parts of the world had better take note--particularly, other major world powers, like the US.

After all, if Libra doesn’t manage to pass through the regulatory gauntlet (which, perhaps, it shouldn’t), and a Chinese CBDC or Corporate Stablecoin does, the US could find itself at a disadvantage; even if Libra does manage to come to fruition, the currency is set to be pegged to a “basket” of fiat currencies, and will be based in the EU.

But there are some signs that other US mega-corporations may be entering the ring. Late last week, US retail giant Walmart filed a patent for a stablecoin of its own--the first major US-based company besides Facebook to show demonstrated interest in launching such a product.

Depending on how you look at it, the timing of the filing is either ingenious or unfortunate--Walmart could either have an opportunity to learn from Facebook’s mistakes in the potential launch of its own coin, or it could be caught in the wake of the regulatory backlash against mega-corporations issuing their own currencies.

But Walmart--although it does have its fair share of image problems--does not have a reputation for data theft and privacy invasion that Facebook does.

“I'm really waiting to see what Walmart does with their proposed stablecoin,” Krapels said. “This is a company from the Heart of America, a true epitome of the American Dream, not some evil Silicon Valley geek corp like Facebook, that is proposing this high-tech concept that is hard-to-understand for many of the hoi polloi.”

“If Walmart keeps pushing this, it could receive a much warmer reception by regulators. Yeah, maybe because FB has primed them to be ready for such a thing, but also because a WalmartCoin just seems like a much more palatable concept.”

Additionally, “Walmart already has a pretty robust financial infrastructure with numerous in-store MoneyGram and Coinstar outlets that are already specifically purposed to ‘banking the unbanked,’” Krapels pointed outside.

“Walmart [also] has 2m+ employess that could potentially be paid every 2 weeks, [and] for the vast majority of America, Walmart is THE place to shop... for everything. Domestic revenue was $332B last year (up 50% since the 2008 financial crisis), while international revenues have remained flat for almost a decade at ~ $120B.”

“For mainstreaming bitcoin and its alt brothers, the WalmartCoin seems to me to be a much bigger deal, if it ever moves past the concept stage.”

A Russian cryptocurrency could be used for surveillance and evading sanctions

Even if Walmart coin doesn’t move past the concept stage, it seems--as it does in China--that it will only be a matter of time before US mega-corporations will begin issuing their own stablecoins--whether they be retail giants like Walmart, tech giants like Facebook or Apple, or financial institutions like Bank of America; JPMorgan Chase has already issued its own stablecoin for internal operations.

But if the phrase “what’s good for the goose is good for the gander” can be applied to major world powers, the inevitable of CBDCs and Corporate Stablecoins in China and the US is also present in Russia.

After all, the Russian government has been exploring the creation of the so-called “CryptoRuble” for the last several years.

Analysts have speculated that Russia’s reasons for doing this may include the ability to increase the government’s ability to surveil its constituents. After all, transactions on a digital currency network can easily be traced to their senders and receivers, given that the proper protocol is in place (and it would be.)

Additionally, the CryptoRuble could also be used to circumvent international law-- Sergei Glazev, an economic advisor to Russian President Vladimir Putin, said in early 2018 that “this instrument suits us very well for sensitive activity on behalf of the state. We can settle accounts with our counterparties all over the world with no regard for sanctions.”

Regardless of its eventual uses, the CryptoRuble is slated to be on the markets within the next 2-3 years. But a Russian company may be allowed to beat the country’s central bank to the punch--Russian social media giant VKontake (VK) is also reportedly exploring the possibility of launching its own cryptocurrency.

Who will win the (crypto)currency war?

So, which of these stablecoins could “win” the war for users--and thus, for global power?

Krapels explained that while there may be a clear leader, there will always be some competition in the market: “I doubt there will be one GlobalCoin (as Libra was first called),” he said. “There will just be too much competition in that space.”

“I think that if world regulators eventually accept this Corporate Stablecoin concept (and there's no guarantee that it ever will because minting money is one of the sources of power for any government) then we will see these Corporate Stablecoins dominate their industry vertical or their particular region,” he said.

Ultimately, though, Krapels explained that the key lies in on- and off-ramping options. “The easy answer is competition should be based on how these products interact with CBDC (if any) and bitcoin,” he said.

“As with crypto exchanges, the key differentiator often comes down to fiat onramps. If that's the case, the CSC with more buy-in from their own local government (and others) wins.”

For example, “if ‘AliCoin operates in a country where it is easy to swap into a CBDC and then that money can be spent freely on phones everywhere in the country, then it will dominate that country. However, it will not have this built-in advantage when it goes outside of mainland China."

"That's where I think the ability to swap into bitcoin will become very important in other countries," he added. "Especially those that are a long way from having a CBDC.”

About the Author: Rachel McIntosh
Rachel McIntosh
  • 1509 Articles
  • 52 Followers
About the Author: Rachel McIntosh
Rachel is a self-taught crypto geek and a passionate writer. She believes in the power that the written word has to educate, connect and empower individuals to make positive and powerful financial choices. She is the Podcast Host and a Cryptocurrency Editor at Finance Magnates.
  • 1509 Articles
  • 52 Followers

More from the Author

CryptoCurrency

!"#$%&'()*+,-./0123456789:;<=>?@ABCDEFGHIJKLMNOPQRSTUVWXYZ[\]^_`abcdefghijklmnopqrstuvwxyz{|} !"#$%&'()*+,-./0123456789:;<=>?@ABCDEFGHIJKLMNOPQRSTUVWXYZ[\]^_`abcdefghijklmnopqrstuvwxyz{|}