Under certain conditions, corporations using their own digital currency instead of fiat may prove to be a cost-effective solution. This finding comes from a Richmond Fed article.
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According to the authors, developing and launching the corresponding platform would entail significant costs, including cybersecurity measures.
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In a low and stable inflation environment, corporations are better off using existing payment systems.
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The situation changes when these costs can be minimized, there is a broad customer base, and inflation rises, pushing consumers to shed fiat.
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Analysts estimate that for Amazon, issuing and using only its own digital currency would become economically viable if interest rates rise above 11% per year.
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The figure could be lower if the retailer increases its market share, presently estimated at 6%. Such high numbers include substantial costs associated with regulatory compliance.
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Corporations’ interest in issuing their own digital currencies lies in earning seigniorage, a feature of central banks. Among other reasons are increased customer loyalty, data collection, and reduced settlement risks.
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Experts emphasised that current payment solutions are safer. Companies still have the option to charge fees for processing payments through platforms, they added.
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The authors noted the risks of private digital currencies competing with fiat.
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“They are capable of reducing seigniorage. If widely adopted, they could expose the financial system to cybersecurity risks and mass bank runs by depositors.”, — the article notes.
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“Such a move would reduce welfare for both consumers and platforms, since it would offset the impact of offered interest rates and low transaction fees”, — the authors note.
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As reported, the Diem announced plans to launch in the United States with a focus on the American market. The Facebook-backed stablecoin was called Libra.
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In February 2021, Amazon announced a developer recruitment drive for the digital currency project.
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