Darrell Hubbard on Unicoin’s model to revolutionize global FX

Last month, the Digital Currency Monetary Authority (DCMA) officially launched an ‘international central bank digital currency’, known as Unicoin or the Universal Monetary Unit (UMU).  

According to its website, the DCMA is,

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…a world leader in the advocacy of digital currency and monetary policy innovations for governments and central banks.  Membership (includes)… sovereign states, central banks, commercial and retail banks, and other financial institutions.

The organization clarified that Unicoin is not designed to disrupt the current global monetary regime but instead strengthen existing sovereign systems and improve bank compliance through the creation of cryptographic solutions.

Speaking this week with former KITCO anchor, David Lin; Darrell Hubbard, Founding Board Member of the DCMA explained,

..all the first-generation coins have all been looking at totally disrupting the banking systems, where they’re competing with Banking… I took sort of the contrarian view that banking holds 20 trillion-plus dollars and I don’t think in my lifetime or anytime thereafter, banking is going to go away. So, I said what if we can embrace… CBDCs or digital currencies for the banking industry and that’s the approach I’ve taken…we basically decided to bring these two worlds together with this international CBDC.

Essentially, Unicoin is a ‘pro-banking’ service which has developed a technological breakthrough.

It offers a single shared ledger than can be settled in any currency, and its primary use case is to improve slow and inefficient cross-border payments.

With built-in exchange rate mechanisms, businesses and trade partners would be able to accept UMU equivalent in any national legal tender for goods supplied or services rendered.

Demand for the service comes from central banks, retail, and commercial banks, fintech governments and cryptocurrency exchanges.

Regulation and volumes

According to another official press release issued on 20^th April, the UMU is authorized to transact in any legal tender currency and is,

…legally a money commodity regulated by the U.S. Commodities Futures and Trade Commission (CFTC).

Currently, there is approximately US$ 100mn of UMU in circulation on its private platform, with adoption consistently doubling for the past five years.

The organization is optimistic that the demand for its FX-services would drive the value of UMU consistently higher paving the way to become a sustainable store of value.

Hubbard adds,

Our idea was to take a cryptographic technology … and apply monetary policy to it … as a true story of value that could be sustainable over time and create true monetary utility…

Although Unicoin can be purchased, Hubbard confirmed that he owned 100% of the equity in the organization.

How it works

According to the DCMA, the UMU uses CBDC-like cryptographic methods to support central banks and financial institutions by operating on a Staked Proof of Trust (SPOT) Protocol and a multi-dimensional DLT (mDLT).

The key value proposition of the UMU is that it enables ‘SWIFT-like cross-border payments’ that can entirely side-step the traditional correspondent banking system and thus, offer wholesale FX rates while facilitating instant real-time settlements.

Continuous demand

Hubbard elaborated,

(UMU) has continuous demand because they have use for it…. We guarantee the best FX rates for cross-border payments… (for example) one dollar is 20 pesos in Mexico… Banks may offer you 1 to 19 so they make that five per cent. In our case, we may offer you one to twenty-one…we offer a higher premium…we are experts in AI (and) foreign exchange, and when people buy UMU, we generate yields from that in the FX markets and we give that yield back to them in premium FX rates.

Other than the AI-driven yield generation, the expected FX rate is so much better since Hubbard and his team have found a solution to maintain a single ledger for all currencies, and yet ensure compliance is met as defined by each participating central bank.

Thus, DCMA expects that by offering FX services at the best prices to banks, fintechs and other partners, they will be able to outperform the mainstream banking system, and this will drive ‘continuous demand’ for UMU.

As a result of the money services mentioned above, as well as features such as milestone payments and escrow facilities, the DCMA expects the price and demand for Unicoin to continue to appreciate.

The DCMA does exert control on the price of Unicoin via internal monetary policy, asset price targeting and in-house market makers as opposed to traditional cryptos who tend to rely on third parties.

Customized to central banking policies

The Former Deputy Chief Data Officer for the U.S. Department of Treasury, Bryan Swann, is reportedly serving as an informal advisor to the DCMA, and noted,

The Universal Monetary Unit architecture is a componentized framework that allows every central bank to configure its own AML, KYC, sanctions, and other compliance rules. The protocol enforces the appropriate origination and destination rules at the time of payment.

Thus, the UMU would be configured by national central banks to build out a ‘global localization public monetary system architecture’ which reflects the regulations of each jurisdiction.

Rather than being enacted as legal tender, the draft Universal Monetary Unit Model Law which was written with the help of several sovereign actors, recommends that the UMU serve as a complementary store of value to help manage seasonal and systemic currency depreciation events, as well as act as a settlement currency.

However, as with everything new, the DCMA concedes that although engagement has been high, there has been some criticism, stating,

Emerging market participants expressed hope Unicoin would be a solution for decolonizing the international monetary system, whereas others expressed fears Unicoin could be a global centralized surveillance tool for governments.

According to Lena Petrova, CPA, who runs a popular Youtube channel,

…(Unicoin) is a framework that allows every central bank to configure its own compliance rules…This is where there’s that unique platform that was needed to adopt CBDC, to adopt individual CBDCs…tailored to their unique (national) policies…

Although the IMF does not advocate the use of UMU in any way, the solution that Unicoin advertises is similar to the views of Tobias Adrian, Financial Counsellor at the IMF,

…imagine if a multilateral platform existed that could improve cross-border payments—at the same time transforming foreign exchange transactions, risk sharing, and more generally, financial contracting.

The mechanics, business model and risk management of Unicoin have closely followed the IMF’s publicly available assessment of crypto-assets.

Parting words

While banks are focused on monetary sovereignty and financial integrity, crypto investors are interested in profit generation and in transitioning to what they view as a fairer financial monetary system.

The UMU tries to offer both, a true store of value driven by continuous demand and a steady appreciation in value.

The DCMA published the Universal Monetary Unit Whitepaper titled ‘A Best-in-Class Money Commodity for Strengthening Monetary Sovereignty with a Digital Economic Union’ and is available here.