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This article is about Stable Coins pegged at CBDC. We will discuss the KYC requirements of that stablecoin, interoperability between different stablecoins, prevention of money laundering, and how it can be used by people around the globe.
Stablecoin pegged at CBDC
Let's begin with the new meaning of stablecoins. Stable Coins will be assets pegged at Central Bank Digital Currencies ( CBDC ) like US Dollars, in the case of USD CBDC. A stable Coin's value increases and decreases based on the value of the underlying Currency not on speculation. Every country will have its own CBDC pegged at their own country’s currencies.
KYC Requirements of Stablecoin CBDC
KYC Requirement for underdeveloped countries, where there is no public infrastructure available for full KYC or where it is expensive to provide full KYC can use partial KYC by using their Smart Phone or their Feature Phone numbers. This partial KYC can only be used for small amounts of transfers like day-to-day expenses. To do large amounts of transactions, Full KYC is required, no matter the cost of providing full KYC or the requirement of documents to prove their identity in underdeveloped countries. Developing Countries like India have a facility for providing Full KYC through their Unique Identification Number program using Aadhar Card.
Interoperability between different Stablecoin CBDCs
Anyone in any country can buy or sell Stable Coins of any country’s CBDC. They can transfer their Stable Coin CBDC between two such Stable Coins at any time with the convenience of a software platform, which will perform transactions at the click of a button. If you find USD CBDC to be profitable at a certain time, you can keep their Stable Coin CBDC. At a different point in time, if you find the Chinese Yuan to be lucrative, you can convert your assets to CNY CBDC, all at the click of a button. Sometimes USD CBDC increases in value compared to CNY CBDC, which makes keeping your assets in USD CBDC valuable and sometimes otherwise.
Stability against local currency
In some countries like Argentina, there is no stability in holding the local currency. In those times, it is advisable to use other Country’s CBDC and transact with that conveniently. Otherwise, you will find the value of the money you hold in local currency eroding fast all of a sudden. International CBDC provides stability in a situation where a local country’s economy collapses.
Cross border transaction
CBDC helps cross-border transactions easy and convenient at the click of a button. A software platform developed by International Financial Services Agencies like the IMF or World Bank will provide ease of use and a standardized platform for all International transactions and convertibility between two CBDCs. It will also help in the reliable and secure cross-border transactions between users in two or more countries. Even providing APIs, which can be used by software platforms to provide more services built upon it, can be useful to users and software developing firms operating above it.
Detecting and preventing Money Laundering
Using Artificial Intelligence, we can detect unusual activities while transactions on CBDC are performed. Anti Money Laundering measures can be performed on CBDC transactions because those transactions leave a digital footprint, even while performing cross-border transactions. It is even more convenient with whitelisted accounts with full KYC. Even if we detect Money Laundering activities after it happens, we can freeze the account, as it is digital. Also, converting CBDC assets into cash requires a complete KYC, not a smartphone identity, as Money Laundering beneficiaries need a large amount of money.
Buying at a Local store or Tourist Destination
Simply put, If you go to a local store in your locality or a tourist destination spot out of your country, to use a stable coin CBDC, you just need to ask for the price of the product, scan the QR code, and select the CBDC amount in the stable coin value asked by the shop owner. For example, shop owner says 1.12 USD CBDC, you may not have US CBDC, but you only have INR CBDC. However, the software platform will convert the value from 1.12 USD CBDC to 93.31 INR CBDC. You just need to pay 93.31 INR CBDC, the software platform will take care of the remaining transactions of conversion and payment.
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