Stablecoins: potential, risks and regulation

Douglas Arner, Raphael Auer and Jon Frost

No 905, BIS Working Papers from Bank for International Settlements

Abstract: The technologies underlying money and payment systems are evolving rapidly. Both the emergence of distributed ledger technology (DLT) and rapid advances in traditional centralised systems are moving the technological horizon of money and payments. These trends are embodied in private "stablecoins": cryptocurrencies with values tied to fiat currencies or other assets. Stablecoins - in particular potential "global stablecoins" such as Facebook's Libra proposal - pose a range of challenges from the standpoint of financial authorities around the world. At the same time, regulatory responses to global stablecoins should take into account the potential of other stablecoin uses, such as embedding a robust monetary instrument into digital environments, especially in the context of decentralised systems. Looking forward, in such cases, one possible option from a regulatory standpoint is to embed supervisory requirements into stablecoin systems themselves, allowing for "embedded supervision". Yet it is an open question whether central bank digital currencies (CBDCs) and other initiatives could in fact provide more effective solutions to fulfil the functions that stablecoins are meant to address.

Keywords: stablecoins; cryptocurrencies; crypto-assets; blockchain; distributed ledger technology; central bank digital currencies; fintech; central banks; regulation; supervision; money (search for similar items in EconPapers)
JEL-codes: E42 E51 E58 F31 G28 L50 O32 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2020-11
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (32)

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