Former U.S. Treasury Secretary Lawrence Summers praised stablecoins, but said he would be surprised if a global digital currency became a reality in his lifetime.
During a special episode of Circle co-founder and CEO Jeremy Allaire's podcast, "The Money Movement" last week, Summers said he foresees more innovation in the blockchain space but a global digital currency is still at a nascent stage. The comments came as part of a broader discussion on the current state of the global economy, the future of a global digital currency and the role of stablecoins in cross-border transactions.
"I'm sure there'll be a variety of kinds of innovation, but I'd be kind of surprised and – you know, I've been surprised many times before – if we got to some kind of global digital currency ... in my lifetime," he said. "I could be wrong, I think ... [W]e'll see a ton of innovation that will work through stablecoins, and that will permit cross-border exchange with more with more ease."
In Summers’ view, the case for cryptocurrency rests on three pillars, but two fail to make strong arguments in favor of the technology.
For one, it is unlikely that governments around the world will debauch traditional currencies to the point where people will no longer want to put money in them. He said he doesn’t “read existing currencies as being on their way to being demolished” just because central banks are finding it difficult to meet their inflation targets, under pressure from rising debts and the crisis caused by the pandemic.
“Second thing, I think, is that I don't think crypto is going to be accepted as some kind of libertarian paradise,” Summers said.
Summers doesn’t think there are people who believe that financial privacy, in terms of the ability to transfer money, is a fundamental human right. Conversely, governments will want less financial privacy over time and they will get what they want, he said.
The strongest case for crypto is that digital currencies have a substantial capability to serve a wide range of uses, particularly because traditional transactions are cumbersome and cost a lot of money, Summers said. The hefty fees for cross-border transfers or the fees involved in card payments and ATM withdrawals reveal the excessive friction and inefficiencies of the current payments system. Stablecoins in particular can permit cross-border exchange with more ease, he said.
Just a week after Summers' remarks, the dollar-pegged cryptocurrency issued by the CENTRE Consortium, USDC, crossed $1 billion in market capitalization.
The stablecoin backed by U.S. dollars held by CENTRE, which in turn was created by Circle and Coinbase, achieved the milestone less than two years after launching, though it trails the Tether stablecoin by some $8 billion, Circle announced Thursday.
Demand for stablecoins has grown, Circle said. It does not appear, however, that this growth was influenced by Summers' comments.
In CENTRE’s announcement Thursday, the growth of global stablecoins was attributed to currency volatility caused by the current financial crisis and a rising demand for “digital dollars that are fast, global, secure, and inexpensive”.
“Secondly, businesses around the world are beginning to seek the advantages of payments made via an entirely new, digital, global and interoperable infrastructure that enables low-cost transfers anywhere nearly instantly,” the announcement said.
During last week’s discussion, Allaire said stablecoins can pose a threat to governments because it can potentially be “accessed with any digital wallet on any smartphone by anyone, anywhere.”
In the same discussion, Allaire said he believes the push for a digital yuan reflects China’s desire to play an even greater role in the world economy. There is also a desire to have a financial system that's not controlled by the West or the Brussels-based global financial messaging system SWIFT, he said.
“With the development of the Chinese digital currency, effectively, they've created a model where a household, a firm, a nation state can kind of directly transact and settle with China over the internet and you don't need SWIFT, you don't need any of the regulations that control that. You can just bilaterally, over the internet, start to achieve that,” Allaire said.
Secretary Summers agreed, saying China wants to control the lives of their citizens, including their financial lives. In his view, a system that lets citizens freely move wealth and resources out of a country is going to be a system that makes the government “deeply nervous”.
“And I think a system that is so restricted that it isn't possible to do that isn't going to be much of a global digital currency,” he said.