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Stablecoins: Growth Potential and Impact on Banking

John Caramichael and Gordon Liao

No 1334, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Stablecoins have experienced tremendous growth in the past year, serving as a possible breakthrough innovation in the future of payments. In this paper, we discuss the current use cases and growth opportunities of stablecoins, and we analyze the potential for stablecoins to broadly impact the banking system. The impact of stablecoin adoption on traditional banking and credit provision can vary depending on the sources of inflow and the composition of stablecoin reserves. Among the various scenarios, a two-tiered banking system can both support stablecoin issuance and maintain traditional forms of credit creation. In contrast, a narrow bank approach for digital currencies can lead to disintermediation of traditional banking, but may provide the most stable peg to fiat currencies. Additionally, dollar-pegged stablecoins backed by adequately safe and liquid collateral can potentially serve as a digital safe haven currency during periods of crypto market distress.

Keywords: Stablecoins; Digital currencies; Credit intermediation; Banking; Systemic risk; Fintech; Financial innovation; Payment system (search for similar items in EconPapers)
JEL-codes: E40 E50 F33 G10 G20 O30 (search for similar items in EconPapers)
Date: 2022-01-31
New Economics Papers: this item is included in nep-ban, nep-fdg, nep-his, nep-mac, nep-mon, nep-pay and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1334

DOI: 10.17016/IFDP.2022.1334

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