Fed has released a new research paper on stablecoins.
The report discussed how stablecoins could affect the financial stability of the United States. While it was stated that stablecoins work as a safe haven when the market drops, it has been suggested that the mass buyback of these assets could seriously disrupt the markets. Researchers Gordon Liao and John Caramichael proposed control and liquidity requirements to avoid potential conflicts. There were also statements that Tether, one of the largest stablecoins, avoided offering a full audit:
“We believe that such instability can be resolved with appropriate institutional and/or regulatory barriers, such as transparent financial controls and adequate requirements regarding the liquidity and quality of stablecoin reserves.”
The research also addressed the issue of credit intermediation, discussing how the widespread adoption of stablecoins will affect the balance sheets of financial institutions and the interactions between consumers and banks. The research compared the stablecoin narrow banking system, where physical cash is tokenized and backed by full reserves at the central bank, and the two-tier brokerage system, where stablecoins are backed by deposit issuers held in commercial banks. The report concluded that a two-tier system poses less risk to US financial stability.
The report predicted that stablecoins could have more uses outside of commerce. Usage is currently driven by cryptocurrency trading, limited peer-to-peer payments and DeFi, but could see further growth in the future by facilitating more inclusive payments and financial systems.
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