The potential impacts and risks of global stablecoins

ABSTRACT

This paper aims to study the implications of the potential large-scale usage of global stablecoins. We start with describing the origin and the evolution of stablecoins, and then analyze the operational mechanism and application scenarios. An analysis on whether global stablecoins will lead to dollarization of a country’s monetary system is then followed, based on the monetary quantity theory and Fisher’s equation. We find that large-scale usage of global stablecoins may have an impact on both large and small open economies, and with a greater impact on the sovereign monetary system of small economies. Further, global stablecoins may affect financial stability through influencing monetary policy, holder confidence and financial system. The potential risks are embodied in technology development, payment security and illegal transactions. To deal with these potential impacts and risks, we propose to strengthen judicial research and plan arrangements for global cooperation and coordination.

KEYWORDS:

• Global stablecoins
• legal tender
• Fisher Equation

JEL CLASSIFICATION:

• G18
• G28
• G38

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work was supported by the National Social Science Fund Major Project of China (No. 18ZDA091), the National Natural Science Foundation of China (No. 71673296) and the Peking University Institute of Digital Finance Project.