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Why is Amazon launching the Bezos stablecoin?
Facebook failed, but another tech giant may soon succeed, preparing to embrace corporate digital currencies.
Trading cryptocurrencies is a massive business; for instance, Bitcoin processed transactions worth $30 trillion in 2021, more than twice the size of American Express. However, most of these transactions are speculative, with a minimal portion involving the purchase of actual goods and services, making it challenging to measure.
What developments could lead to cryptocurrencies replacing the US dollar as the primary medium of exchange? It might resemble the model proposed by Facebook (now known as Meta) with its Libra stablecoin (later renamed Diem). Despite Diem facing significant setbacks in 2021, with US Treasury Secretary Janet Yellen refusing to endorse it, it doesn't mean a similar model cannot succeed. In fact, Yellen's refusal to support Diem indicates her belief that private digital currencies could be serious competitors to the US dollar and a challenge to the US Treasury.
Here, I outline the reasons driving private digital currencies and explain why a currency following a stablecoin model similar to Facebook's proposed Libra, later renamed Diem, could soon gain prominence in the United States.
1. **Company's Cash Assets:**
The concept of private digital currencies dates back to at least 1994, when the late Edward de Bono proposed the idea of the "IBM dollar." In his vision, large manufacturing companies should create their currencies for purchasing their products, providing a way to smoothen sales fluctuations and make business more predictable.
Amazon, with over 200 million unique visitors monthly and an annual revenue of around $500 billion, has the potential to launch its digital currency. Drawing inspiration from some Libra concepts, Amazon's stablecoin could operate as follows:
- **Amazon Platform:** Amazon could announce that users can continue using credit cards for payments and introduce a digital currency named "Amazon Coin" (let's call it "Bezos Bucks" or BBs). Customers could convert dollars into Amazon Coins, and at least in the short term, exchange them back into dollars at a 1:1 ratio, perhaps incurring a small fee.
- **Shopping Discounts:** Using Amazon Coins for shopping could provide users with a discount, say, 2%, incentivizing people to use Amazon Coins. Amazon has already introduced a virtual currency called "Amazon Coins" for purchasing specific apps and games in the Amazon Appstore.
- **Amazon Marketplace Influence:** As a platform connecting buyers and sellers, Amazon has significant market power. In principle, Amazon could encourage sellers on its marketplace to accept Amazon Coins instead of dollars. However, initially, this arrangement might be impractical for sellers as Amazon Coins have no utility for them, requiring them to pay suppliers in dollars, at least initially.
- **Seller Incentives:** If Amazon Coins gain widespread use, this won't be a problem. Amazon could pay a portion (initially, perhaps 10%) of the sale price to sellers in Amazon Coins, with the remainder paid in dollars. Each seller would have a digital wallet, and Amazon Coins would be deposited into it, providing an incentive for sellers to keep Amazon Coins in their digital wallets, where they can be seamlessly converted into dollars.
2. **Amazon Web Services (AWS):**
The second pillar involves Amazon Web Services (AWS), the world's largest cloud computing company. AWS initially served to operate Amazon's platform but evolved into a company providing similar services to other companies and even university researchers.
Major cloud service companies operating on AWS include Baidu, BBC, ESPN, Facebook/Meta (for third-party collaborations with existing AWS users), and Turner Broadcasting System. Amazon could inform these large companies that they must hold a certain amount of Amazon stablecoins in advance, similar to prepaying for AWS services. This move benefits AWS by essentially transferring working capital (funds for day-to-day operational activities) from AWS to its clients.
While this approach adds extra costs for clients, such a practice is unlikely to succeed unless Amazon/AWS forms partnerships with some or all of these large companies, increasing the likelihood of private digital currency success.
3. **Regulation:**
The third pillar is regulation. Amazon would acknowledge that by issuing the Amazon stablecoin, it essentially acts as a money market mutual fund (MMF). Therefore, the company would willingly agree to have its currency operations regulated as a money market fund by the US Securities and Exchange Commission (SEC).
MMFs are subject to regulations under Rule 2a-7 of the Investment Company Act of 1940. Amazon could agree to meet or exceed all these conditions, pledging to make its digital currency reserves the cleanest money market fund.
This regulatory compliance would give Amazon stablecoin characteristics similar to the Libra model's stablecoins. Unlike Libra reserves, Amazon stablecoins would have Amazon stablecoin reserves. Keeping the entire reserve in US Treasury securities would satisfy regulatory requirements and instill confidence in Amazon stablecoin holders that they can convert it into dollars (or other currencies, as Amazon is a global company) at any time.
4. **Financial Inclusion:**
The fourth pillar is financial inclusion. By efforts on platforms like Libra, Facebook depicted the struggles of those excluded from traditional banking— not just in sub-Saharan Africa but also in South Los Angeles and the South Side of Chicago. Many people in these communities lack bank accounts or pay exorbitant fees for basic banking services like using ATMs. Due to a lack of alternatives, they might be forced to pay high fees for short-term loans.
The promotion of private digital currencies partly aims to provide affordable and secure financial services to people in these communities. While doing so might not be profitable for existing banks and financial service companies, companies like Amazon can easily absorb these costs, considering them as |
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Post time 10-12-2023 06:51:02