The Federal Reserve’s ongoing research into Central Bank Digital Currencies (CBDC) has expanded to include Stablecoins and whether they can be regulated successfully. They plan to assess the benefits and risks involved with Stablecoins.
A Paper titled “Taming Wildcat Stablecoins” was released in SSRN’s eLibrary on July 17 by Yale Economist Gary Gorton and U.S. Federal Reserve attorney Jeffery Zhang.
They linked Stablecoins to a time when private banks issued their own notes in order to meet growing customer demand. Private bank notes were also uninsured.
Both argue that “privately produced money” such as Stablecoins are “not an effective medium of exchange because they are not always accepted at par and are subject to runs”. The authors then propose to address what they consider to be “The systemic risks created by Stablecoins”. It includes regulating Stablecoin issuers as banks and issuing a central bank digital currency.
“If policymakers wait a decade, Stablecoin issuers will become the money market funds of the 21st century – too large to fail- and the government will have to step in with a rescue package whenever there’s a financial panic,” the paper reads.
Beginning July 19, Yellen will convene the President Working Group on Financial Markets to Discuss Stablecoins. The Group brings together various regulators to assess the potential benefits and risks of Stablecoins.
