Fed and Yale researchers lay out 2 regulatory frameworks for stablecoins

Fed and Yale researchers lay out 2 regulatory frameworks for stablecoins


The Federal Reserve’s ongoing research into central bank digital currencies, or CBDCs, has broadened to include stablecoins and whether they can be effectively regulated. 

In their paper, which was published in SSRN’s eLibrary on July 17, Gorton and Zhang argue that “privately produced monies” such as stablecoins are “not an effective medium of exchange because they are not always accepted at par and are subject to runs.” The authors then go on to propose solutions to address what they consider to be “systemic risks created by stablecoins.”

After taking a deep dive into the history of private money, beginning with the Free Banking Era in the United States, a period from 1837 to 1864,  the researchers concluded that policymakers have two choices with respect to regulating stablecoins: make stablecoins equivalent to public money or introduce a CBDC, which entails taxing private stablecoins out of existence.

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With respect to the first choice, the government could require that stablecoins be issued through FDIC-insured banks

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