IMF Strong Paper: The Rise of Stablecoins

Moni

Odaily资深作者

2019-09-20 11:42 (UTC+8)

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Today's policies will shape tomorrow's world.

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Today's policies will shape tomorrow's world.

This article comes fromThis article comes from, by Tobias Adrian and Tommaso Mancini-Griffoli

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Using digital payments, some startups are looking to expand beyond traditional paper money and debit cards. Indeed, this new way of paying can bring huge benefits to customers and society, such as: increased efficiency, increased competition, greater financial inclusion and innovation. But at the same time, this new payment method will also create a series of risks, such as: financial stability and integrity issues, monetary policy effectiveness and competition standards.

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Adoption of Stablecoins

The adoption of new forms of money depends largely on whether they are attractive enough for people to use as a store of value and a means of payment. However, new forms of "money" like stablecoins are very different from cash or bank deposits. Although many stablecoins can claim against the issuer or their corresponding assets after a problem occurs, and some stablecoins also provide a redemption guarantee corresponding to the face value (for example, if you buy 10 euros, you can redeem 10 euro banknotes, just like a bank account ), but in fact stable coins still lack government endorsement. Trust must be supported by a corresponding amount of legal currency to be generated "privately", but in the blockchain mode, settlement technology is usually decentralized.

Times are changing.

One of the most attractive features of stablecoins, though, is that they can make payment transactions as easy as communicating on social media. Payment is not just about transferring money, it becomes an essential social experience that connects people. Stablecoins present an opportunity to better integrate us into our digital lives, and there are already companies designing many user-centric features. Large tech companies with large global user bases can provide ready-made networks that allow this new payment service to spread quickly.

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The Risks of Stablecoins

It should be noted that stablecoins also have many risks. Therefore, policy makers must create an environment that maximizes benefits and minimizes risks. In addition, policy makers in different countries and different cross-functional departments in the same country need to innovate and collaborate with each other. Let us work together Take a look at the six main risk points that are worthy of attention in stablecoins.First, if the bank loses its deposit with the stablecoin issuer, it means that the bank may lose its "middleman" status.

But banks will certainly not sit idly by, but will choose to use innovation (such as offering higher interest rates) to improve their competitiveness. In addition, stablecoin issuers can also withdraw their funds into the banking system, or engage in loan business by increasing deposits themselves. In short, banks are unlikely to disappear.Second, new monopolies may emerge.

Tech giants use their vast networks against rivals and block rivals from accessing monetary information, such as customer transaction data. At the same time, new standards are needed for data protection, portability, control and ownership, and related services need to be interoperable.Third, weak currencies may be under threat.

In countries with high inflation and weak financial institutions, local currencies may be abandoned in favor of more stable foreign currencies, or stablecoins backed by foreign currencies. This would actually create a new form of "dollarization" which in turn has the potential to undermine monetary policy, financial development and economic growth. As a result, if governments are forced to adjust monetary and fiscal policies, they will have to decide whether to limit stablecoins pegged to foreign currencies.Fourth, stablecoins may lead to more illicit activities.

Stablecoin issuers must enforce international standards, and regulators need to show them how to prevent the network from being used for activities such as money laundering and terrorism financing. Although new technologies provide many ways to optimize monitoring, regulators need to adapt to the increasingly decentralized and geographically complex stablecoin value chain.Fifth, stablecoins may cause a loss of "seigniorage" revenue.

The so-called "seigniorage" refers to the profit that the central bank receives from the difference between the face value of the currency and the manufacturing cost. If the stablecoin has no interest, the issuer may grab profits and get a return through the hard currency backing the stablecoin. One way to address this problem is to promote the degree of competition that incentivizes stablecoin issuers to eventually pay interest.The first thing is to protect the safety of customer funds, while ensuring that funds will not be affected by bank runs. Achieving this goal requires legal clarity on the types of financial instruments that stablecoins represent. There is a method worthy of attention, which is to implement strong supervision on some stablecoins similar to "money market funds", so that a fixed nominal return can be guaranteed, and at the same time, stablecoin issuers must maintain sufficient liquidity and capital at all times.

Although stablecoins face many challenges, they also have great potential for development, so policymakers need to be "smart" and develop a regulatory system that can meet the challenges and have a vision.