A Focus on Stablecoins Today and Their Future Potential

The Board of Governors of the Federal Reserve System has published a paper on the growth potential and impact on banking of stablecoins ¹. The paper explores what stablecoins are, their risks and their possible uses, including a look at the future. It is sometimes suggested that if central banks issue CBDCs, then the role and need for stablecoins will wither away since CBDCs will fulfil their role. This is, therefore, a useful summary and the reader can consider whether there is room for CBDCs and stablecoins.

What are stablecoins?

Stablecoins are recorded on DLT, usually using blockchain. They are pegged to a reference value such as the US Dollar, or other fiat currencies. Alternatively, they can be linked to a basket of currencies, other cryptocurrencies or commodities such as gold. They can fulfil both the store of value and medium exchange functions of money and can be exchanged and/or integrated with other digital assets.