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The Stablecoin Debate

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"" Innovation in payments services, and the competition it generates, is good for consumers. " Stablecoins are a new version of something older and more familiar: the bank deposit. " State support to banks "does not come for free ... they have costs ... they limit free entry into the markets in which banks operate." "Regulation and supervision protect banks from direct competition."
Christopher Waller, FED Board of Governors

"Innovation in payment services, and the competition it generates, is good for consumers." Stablecoins are a new version of something older and more familiar: the bank deposit. " State support for banks "is not free ... they have costs ... they limit free entry into the markets in which banks operate." "Regulation and supervision protect banks from direct competition." I do not agree that the issuance of Stablecoins should be left to the banks alone ”. "It is not necessary to impose on Stablecoins all the prudential regulation that is required of banks because their objective is ... loan activities and not payments"

These are some of the messages from Christopher J. Waller on “Stablecoins and Innovations in Payment Services"

I am not going to comment on those reflections with which I agree because his speech is short and easy to read. Here I will only point out one very important discrepancy and absence.

With proper regulation, Stablecoins can contribute favorably to innovation and the incorporation of new technologies into payment services.. But I do not agree with the proposal to abandon the work aimed at allowing all citizens and companies access to public digital money, aka CBDCs. It is possible that the introduction of retail CBDCs is not enough for some new technologies to be incorporated and therefore Stablecoins should be allowed, adequately regulated, as an additional form of competition.

HoweverWith CBDCs, all citizens will be able to have an infrastructure to access public money through private providers. This will be an important and necessary source of competition.. Because not all potential competitors in a liberalized payment service system have the ability to issue Stablecoins. For this reason, opening up to the private initiative the possibility of providing payment services with public money would allow a significant increase in competition. CBDCs would compete with Stablecoins and therefore reduce market dominance problems that may arise. In addition, many innovations that some Fintech companies are already proposing are not limited to strictly offering payment services, but also provide new services highly valued by consumers.

Second, among his reflections a very important one is missing. Waller correctly understands - and says so - that regulation of Stablecoin reserves should require that the backing be made with very safe assets. But does not mention the requirement that the reserve should be made up one hundred percent of assets that have no risk, that is, public money. I already made this same observation when commenting the report of the Working Group on Financial Markets. And it is that this way all payment services would be carried out, either with public money (CBDCs), or with a XNUMX% support of public money (Stablecoins). With that, instability problems would disappear, of the threat of collapses in the flows of money that the current system has and it would not be necessary for monetary policy to be done indirectly, manipulating interest rates with massive interventions in the markets.

One day I overheard this conversation between two young people on the subway. One reproached the other: "You can't have it all!" And the other replied: "And why not?"

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About the Author

Miguel A. Fernández Ordóñez

Miguel A. Fernández Ordóñez

State economist. Former Governor of the Bank of Spain and member of the Governing Council of the European Central Bank (ECB). He currently teaches Seminars on Monetary Policy and Financial Regulation at IEUniversity.

4 answers

      1. I was surprised by this sentence, almost at the end:

        «CBDCs raise many questions at a domestic level, but they raise even more in the cross-border dimension. Research in this area is still in its infancy. »

        That means that in reality it is all very in diapers. Without secure international payments ... how to proceed?

  1. Good Morning.

    I commented something similar in the previous post. How to distinguish official money, that created by the state, from fiat money created by private banks? Because right now there is no difference. If a private bank writes 100.000 euros in your account, that money is put into circulation EVEN IF THE CREDIT IS FAILED. I'm thinking of the biggest bankruptcy in Spain, that of Martinsa. 7.000 million euros I think I remember a bad loan. Martinsa did not pay that debt, but the owner of FADESA did collect them and they are in the monetary system. For me, that is the biggest risk of modern banking, more than insuring your deposits.

    The question is: are you considering a CBDC as a substitute for coins and bills and one or more Stablescoins as a substitute for fiat money? Are we going to a multi-currency system? Is it feasible, is it better than the current one?

    Greetings and sorry for my questions born out of ignorance but out of curiosity to learn.

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