By Staff Writer
In the second part of our interview, early Bitcoin investor and ambassador of the P2P Foundation Kartik Iyer discusses various issues such as the IMF’s decision to ban stablecoins, Facebook’s recent decision to invest in India’s Reliance Jio, amongst others.
Q: I heard the IMF is going to ban stablecoins. What do you think could be the reason because IMF was previously quite enthusiastic about stablecoins?
Today we live in an almost cashless society. The incremental value of stablecoins is very minimal, and the problem also was that cryptos had been hijacked for money laundering and terror financing. The governments are naturally skeptical of stablecoins. A lot of governments or large public institutions are terrified that this could be used for tax evasion or terror financing, and money laundering. Also, it isn’t easy to audit some of them. So, the problem with that for institutions is trust and the IMF came up with the decision that they might ban stablecoins. If that happens, a lot of companies might be wiped out.
Q:They are mostly used for settlements?
At least, now they have to look at the market. The real value of stablecoins is settlements. I’m not saying it’s completely wrong to use stablecoins, it just has to be regulated and has to have some sort of oversight so that people don’t lose their money. I still remember 2017’s crypto revolution. Suddenly you have all sorts of people stealing money. Many simple and middle-class people who invested money have lost everything. So, the government has important role in regulating this. We as a blockchain industry also has a responsibility in making sure that some of these technologies are not needed. I think stablecoins might get regulated as most governments are looking forward to it. Currently, there are estimated to be nearly 78 countries planning their own digital currencies. If that happens, then there is no need to trust a private entity to issue stablecoins. Let’s say the Indian government issues a stablecoin then I would never buy from private institutions.
Q: What would the role of central banks be, if everyone starts issuing stable coins? There are rumors that it might erode the functions of central banks?
As I said there is trust with the government. But with the private institutions you don’t know if they will exist or vanish because there are too many cases of people vanishing. So the trust is much higher with the government, and you also see a lot of capital flowing in. I would trust the Indian government or the American Federal Reserve. Now people are smarter and you don’t see them investing in anything random. Investors are becoming smarter and they are asking where the value is. The biggest question is the token doesn’t correlate with revenue. What is the value of the token? Readers can find it by searching for ‘karthik iyer’s tokenomics’ and I go in great detail about fiscal and monetary policies. All these changes are coming and governments are regulating them. We see mainstream adoption of blockchain in governments from currency management to settlement and all the other stuff. Singapore is leading in these projects and I have seen projects where they are using Singapore Dollar to settle transactions between banks. It’s called corporate cryptocurrency. In retail, you have country like China that is also looking to issue central bank digital currencies. There are multiple stages and the first the banks to settle between themselves with a public cryptocurrency. One of the benefits of a stable coin is that you can conduct monetary policy more effectively. A lot of countries have negative interest rates. When you have negative interest rates, then you are losing money. The governments need to figure out ways to get inflation. All of this can be monitored using a national digital cryptocurrency, esp in countries where there are negative rates.
Q: How do you think Libra and the Chinese Central Bank Digital Currency function? It seems like they both are going to happen. How do you think it will impact the world we live in?
Libra has come up with a new white paper. So previously Libra crypto currency was backed by a basket of securities, European government bonds and very stable assets. Whereas now after all they have seen from the US senate hearings, they realized that they could do it differently. They will include stablecoins for each region such as Euro Libra, USD Libra etc. So in different regions you will have different Libra currencies instead of getting a basket of currencies. Libra is fundamentally different as it’s not sovereign. You cannot issue it on money, whereas the government can issue it for money and that can be a digital currency. They are fundamentally different from each other. Eventually, they will be launched by 2021. Facebook has users more than China’s population and the American government might not have a say in it as the company issuing the tokens is Calibra, which is registered in Switzerland. It might be a separate entity that would issue the tokens. There are various ways to structure it and make it feasible from a legal point of view.
Q: The news now is that Facebook is investing in Reliance Jio?
The big game is the data game. It might not make a lot of money on transactions but with that amount of data a lot of predictions can be made. This platform is the fastest-growing network company and they are getting into India on the right time. So, Facebook is doing the right thing on right time in country with billions of people with the highest percentage of mobile usage. So much data leads to the development of models and with models leads to intelligence. If you think about it, now is a fascinating time.