BIS research suggests “embedded” supervision for stablecoins/CBDCs

There is a dichotomy between existing stablecoins and planned global stablecoins. Existing stablecoins aim to serve as a means of settlement for automated financial products, offering the possibility of so-called “smart” contracts, like self-executing code. Global stablecoin proposals like Facebook’s Libra claim that they will make possible new forms of online exchange through their 24/7 availability, borderless nature, fractionalization and integration with non-financial services.

In this light, they aim to challenge existing digital means of payment for e-commerce like traditional bank payments, credit cards and electronic wallets. Researchers for the Bank for International Settlements argue that the regulatory responses to global stablecoins should take into account this difference. The response to global stablecoins should address the potential for other stablecoin uses, such as embedding a robust monetary instrument into digital environments, especially in the context of decentralized systems.

Looking forward, in such cases, stablecoins may allow for embedded supervision. At the same time, researchers suggest that many of these benefits may be achieved – and arguably more effectively in many cases – with CBDCs and other initiatives such as fast payment systems.

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