Stablecoins: Business Model, Systemic Risks and Policy Perspectives

Srichander Ramaswamy ()
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Srichander Ramaswamy: The South East Asian Central Banks (SEACEN) Research and Training Centre

Working Papers from South East Asian Central Banks (SEACEN) Research and Training Centre

Abstract: The view that cryptocurrencies can be a substitute for fiat currencies in an interconnected and digitised world appears to be gaining some traction. Such views are reinforced by the high fee banks charge on cross-border money transfers and for certain other financial services. The belief that cryptocurrencies will define the future of money is entrenched among millennials, and this belief has been driving up the demand for cryptocurrencies. Stablecoins in this ecosystem has taken on the role of the unit of account for crypto assets and is instrumental in providing liquidity as well as in facilitating trading of crypto assets. To play this role, stablecoins are being extensively used as collateral in crypto transactions with trading platforms holding such collateral in omnibus accounts. The global regulatory community is taking note of this and has expressed concerns that as the market for stablecoins and cryptocurrencies grow, potential risks to the broader financial system from runs on stablecoins can be damaging. This paper reviews these developments and provides some suggestions for policy drawing on the regulatory debates and initiatives from standard setters to address the risks identified.

Keywords: Central banks; collateral; cryptocurrencies; financial stability; regulation; stablecoins (search for similar items in EconPapers)
JEL-codes: E42 E58 G21 G23 G28 (search for similar items in EconPapers)
Date: 2024-04
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mon, nep-pay, nep-reg and nep-sea
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