Stablecoins: Risks, Potential and Regulation

31 Pages Posted: 15 Dec 2021

See all articles by Douglas W. Arner

Douglas W. Arner

The University of Hong Kong - Faculty of Law

Raphael Auer

Bank for International Settlements (BIS)

Jon Frost

Bank for International Settlements; University of Cambridge - Cambridge Centre for Alternative Finance

Date Written: November 2020

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 fulfill 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

JEL Classification: E42, E51, E58, F31, G28, L50, O32

Suggested Citation

Arner, Douglas W. and Auer, Raphael and Frost, Jon, Stablecoins: Risks, Potential and Regulation (November 2020). BIS Working Paper no. 905 (2020), University of Hong Kong Faculty of Law Research Paper No. 2021/57, Available at SSRN: https://ssrn.com/abstract=3979495 or http://dx.doi.org/10.2139/ssrn.3979495

Douglas W. Arner (Contact Author)

The University of Hong Kong - Faculty of Law ( email )

Pokfulam Road
Hong Kong, Hong Kong
China

HOME PAGE: http://hub.hku.hk/rp/rp01237

Raphael Auer

Bank for International Settlements (BIS) ( email )

Jon Frost

Bank for International Settlements ( email )

Basel
Switzerland

University of Cambridge - Cambridge Centre for Alternative Finance ( email )

10 Trumpington Street
Cambridge, CB21QA
United Kingdom

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