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

Peter Bofinger ()

No 100-2025, IMK Studies from IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute

Abstract: The paper discusses the functions and the potential of stablecoins as an innovative payment system: Stablecoins constitute a new payment object which can be used for a direct exchange on the infrastructures provided by blockchains and crypto exchanges. For the discussion of stablecoins It is important to distinguish between bond-based and bank-based stablecoins: While the former use bank deposits as collateral, the latter use short-term treasuries. Bond-based stablecoins have an attractive business model. They enable direct international.payments, i.e. without an intermediary, based on a safe transaction asset. Market dynamics reveal significant network effects: the system is characterized by the US dollar as the dominant currency denomination, a duopoly of two issuers, and a small number of blockchains. In the last few years, the dominant issuers have demonstrated resilience even during periods of economic shocks. 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: crypto currencies; blockchain; stablecoins. Digital Euro; cyrpto exchanges (search for similar items in EconPapers)
Pages: 55 pages
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:imk:studie:100-2025

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