Stablecoins and the Future of Money: Economic Principles and Policy Implications

Peter Bofinger

No 20583, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: The paper discusses the functions and potential of stablecoins as an innovative payment system. It is important to distinguish between bond-based and bank-based stablecoins. Bond-based stablecoins have an attractive business model, offering international direct payments based on a secure transaction asset. Market dynamics reveal significant network effects, with a single currency denomination, a duopoly of two issuers, and a limited number of blockchains. The dominant issuers have demonstrated resilience during periods of economic shock. The macroeconomic effects of bank-based stablecoins are limited, since they cannot create loans. However, bond-based stablecoins can create money by purchasing government bonds. While bank-based stablecoins create financial stability risks by interconnecting banks and stablecoin issuers, bond-based stablecoins do not present this risk. The Digital Euro is not an alternative to stablecoins. Its use is limited to the euro area, it is designed for retail payments, and it only allows asset holdings for private households.

Keywords: Stablecoins; Blockchain; Cryptocurrencies; Central Bank Digital Money CBDC (search for similar items in EconPapers)
JEL-codes: E42 E52 E58 G15 G21 G23 (search for similar items in EconPapers)
Date: 2025-08
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