The Rise of the UNICOIN- What are the Possibilities and Risks?
By Adedolapo Grillo
Many countries and markets are looking to adopt monetary policies that are independent of the dollar because of the faults of the international monetary system. So they turn to digital currencies and policies since these offer a mouth-watering alternative to the current system.
Recently, the Digital Currency Monetary Authority (DCMA) announced the launch of the Universal Monetary Unit (UMU) at the International Monetary Fund (IMF) Spring Meetings 2023.
Dubbed the Unicoin, the UMU is an international central bank digital currency (CBDC) that transacts cross-border payments over digital currency rails. Transactions with the coin will also bypass the correspondent banking system while providing good wholesale FZ rates and instantaneous real-time settlement.
What do all these mean?
Put simply, the Unicoin is a cryptocurrency against which all other crypto coins and CBDCs can be pegged. It has been designed as a digital currency for central banks that can facilitate instant cross-border payments on an international scale.
Is the Unicoin a cryptocurrency or a CBDC? Unicoin, according to Darrell Hubbard, executive director of DCMA, combines the advantages of cryptocurrencies and CBDCs to provide the best of both worlds. As a crypto asset, Unicoin implements monetary policies that enhance its store of value beyond that of any fiat currency, while adhering to banking regulations to reinforce monetary sovereignty.
The objective is to use it as a global trading currency, more like the dollar to other traditional currencies.Some experts believe that the Unicoin will help emerging countries to trade better in the global market. These emerging markets include countries in Africa and Asia, as well as some markets in South America. The governments of these countries are banking on the freedom of control that the unicoin ecosystem provides to try to improve their stakes on the global market.
On the other hand, some experts fear that the Unicoin will be used by powerful governments as a surveillance tool to control the market more strongly. Regulating the crypto space and utilising a coin that can perform cross-border transactions may give more power to the developed markets of the world at the detriment of the emerging markets.
Hubbard points out that the Unicoin will encourage a fair and open Monetary trading system, while ensuring financial integrity and stability.
Is the Unicoin the first of its kind?
To some extent, the Unicoin is not the first of its kind. As a Central Bank Digital Currency, it is the latest in a long line that includes Project Sand Dollar, ePeso, eNaira, eCNY, among many others. CBDCs are issued by the Central Bank of a country as its digital legal tender.
The supply of these digital currencies are regulated by the monetary policies of their central banks. If a country's traditional currency loses its value to the dollar, its CBDC will also lose value.
But the Unicoin is not simply a CBDC, it is also part crypto. This means that it can be distributed based on ledger technology, and does not belong to a single central bank.
What makes the Unicoin different and what are its benefits?
The Unicoin is part crypto and part CBDC. Since it is a UMU, it is regulated by the U.S. Commodities Futures and Trade Commission (CFTC). As a cryptocurrency asset, the Unicoin adopts policies that make it decentralised and stronger than the traditional currencies. As a CBDC, the Unicoin will comply with banking regulations to strengthen the financial sovereignty and integrity.
Built on open standards, the Unicoin is deployed like a money operating system. This means that banks and Fintech organisations can integrate their apps with the UMU wallet to perform transactions, including digital payments and trading. The UMU also offers premium FX rates, reserve cash incentives, and term purchase incentives.
Essentially, with the Unicoin, it is expected that investors can trade with the freedom that crypto assets offers, that is total control over their financial assets, and with the high level of trust and integrity that comes with trading a regulated legal tender.
What are some concerns regarding the Unicoin?
Well, right now, there are only speculations as to what the demerits of the Unicoin can be. The IMF released some objections to the adoption of digital assets, of which the UMU is a part. However, the response of the DCMA can be found in the whitepaper they released on the Unicoin.
Some of the concerns include the opinion that the adoption of digital assets like the UMU will threaten the effectiveness of international monetary policy as well as weaken financial stability.
The DCMA assures that the Unicoin will not weaken the stability of the global financial market, but would aid and strengthen it. We have to look to the future to determine the veracity of this declaration. However, questions on liability, and relationships between central banks, private investors and international organisations are still not very clear in the Unicoin discussion.
What would the UMU mean for Africa?
When it comes to crypto adoption, Africa is proving to be a global pacesetter. However, most governments within the continent have proved averse to the idea of crypto, banning it altogether.
With the creation of the Unicoin, it is very likely that African governments might begin to consider crypto as a viable option in their financial plans. Countries such as the Central African Republic and South Africa have a head start, but if countries like Nigeria, Egypt and Ghana were to open its arms to embrace the crypto ecosystem, it would make the penetration of crypto in Africa nigh successful.
It is a fact that Africa needs to own itself as a global player in the world’s politics, especially in terms of finance, and UMU might just be the answer. If the governments within the continent accept the Unicoin, investors will be encouraged to trade and thus, there will be an improvement in the economic standing of the continent.
However, the adoption of unicoin could pose a threat to the sovereignty of African local currencies, making it challenging for central banks to implement monetary policies to control inflation and stimulate economic growth. This could be especially problematic for countries with weaker economies or those heavily dependent on foreign currency reserves.
Another issue is that the use of Unicoin could lead to increased capital outflows from African economies, as individuals and businesses may choose to hold their wealth in the digital currency rather than in local currencies. This could potentially exacerbate existing problems with capital flight and reduce the amount of investment available for local development as well.
Overall, while the introduction of Unicoin may offer benefits in terms of increased efficiency and reduced costs for cross-border transactions, there are also potential negative economic effects that must be carefully considered and managed.
Finally,
We can only hope that the UMU will help to foster economic growth and strengthen financial integrity, as has been promised. In the meantime, let's keep our fingers crossed. Interesting times are ahead.