Regulating Global Stablecoins: A Model-Law Strategy
62 Pages Posted: 30 Nov 2021 Last revised: 4 Feb 2022
Date Written: November 24, 2021
The United States, other governments and multinational organizations, and the private sector are urgently exploring the possibility of employing digital currencies, especially for facilitating retail consumer payments domestically and across national borders. Stablecoins represent one of the two types of digital currencies that are likely to become feasible in the near future. Epitomizing the financial system’s complex evolution towards more public-private interdependence, a stablecoin is a non-government issued digital currency that is backed by 'reference assets' having intrinsic value, such as dollars or euros.
Everyone agrees that a viable retail digital currency will require a robust legal framework. However, the application of multiple, and potentially conflicting, national laws to the cross-border use of stablecoins (as so used, 'global stablecoins') would generate high costs. It also would create uncertainty about international enforceability. This Article analyzes how global stablecoins should be regulated to reduce those costs and assure enforceability. It compares two potential regulatory strategies: an international treaty, and a uniform model law. It then explains why a model-law strategy would be more effective and would better complement global stablecoin regulation.
Thereafter, the Article designs and critiques, and proposes possible text for, a model law that could be used to regulate global stablecoins. The design starts by addressing the basics of stablecoin regulation and then adding the cross-border elements. It therefore should be applicable not only to regulating global stablecoins but also, by excluding its cross-border elements, to regulating domestic stablecoin usage. Furthermore, the design follows normative regulatory goals that are generally consistent with the principles and recommendations advanced by the world’s leading central banks and multinational financial organizations for regulating global stablecoins. The model law thus provides a legal template that could be enacted in nations in which stablecoins become widely used.
Suggested Citation: Suggested Citation