Regulating Stablecoins as Private Money. A Critical Take on the EU Proposal between Liquidity and Safety

Martino, Edoardo D.

doi:10.2139/ssrn.4203885

Cited by 2 publications

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“…Here we refer to stablecoins, tokens that can be pegged to other assets (including commodities like gold and silver and fiat currencies) as well as to an algorithm. 14 However, these tokens are both very different from and very similar to CBDCs. They are different as they usually (but not necessarily) follow a decentralized system of issuance and of distribution, and then they rely either on the peg or on an algorithm (through smart contracts) to keep their value stable.…”

Section: The Risks and Opportunities Of Digital Currenciesmentioning

confidence: 92%

‘All that glisters is not gold?’ The digital euro between myth and reality

Zaccaroni

2023

Maastricht Journal of European and Comparative Law

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Central bank digital currencies (CBDCs) are being studied and tested in many countries. The European Central Bank (ECB) and the European Commission have been working on an EU CBDC, the digital euro, since 2020. On 28 June 2023 the European Commission adopted a proposal for a regulation establishing the digital euro. This paper, after contextualizing CBDCs in the wider group of digital currencies, analyses the legal and technical design issues emerging from the legislative initiative of the European Commission and from the ongoing preparatory phase of the ECB. Despite the ‘myth’ that the introduction of an EU CBDC could have potentially disrupted the way in which traditional banks and financial institutions work, the reality seems that the proposed digital euro is solidly under the control of the ECB. Thus it is crucial, to ensure full ECB accountability, that the EU decision-making institutions, and in particular the Parliament, engage fully in the legislative procedure.

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Section: The Risks and Opportunities Of Digital Currenciesmentioning

confidence: 92%

‘All that glisters is not gold?’ The digital euro between myth and reality

Zaccaroni

2023

Maastricht Journal of European and Comparative Law

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“…The literature surrounding the liquidity risks of fsCOINs has focused on their similarity to money market funds (MMFs) and exchange-rate pegs. Martino (2022) draws attention to their procyclicality and maturity and liquidity transformation, concluding that fsCOINs present systemic liquidity risks similar to those of MMFs before European regulation and arguing that the European Union's Markets in Crypto Assets Regulation (MiCA) should favor market stability over investor protection and innovation. MacDonald and Zhao (2022) contend that fsCOINs' collateral chains and maturity and liquidity transformation cause destabilizing systemic risks to financial systems during periods of financial stress when flights to safety and flights to liquidity cause financial asset prices to plummet.…”

Section: Review Of the Literaturementioning

confidence: 99%

Synthetic Central Bank Digital Currencies and Systemic Liquidity Risks

Marthinsen,

Gordon

2024

IJFS

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The failure of major banks in 2023, such as Silicon Valley Bank (SVB), Signature Bank, First Republic Bank, and Credit Suisse, points to the continuing need for financial institutions to price liquidity risk properly and for financial systems to find alternative sources of liquidity in times of dire need. Central bank digital currencies (CBDCs), fiat-backed stablecoins (fsCOINs), and synthetic central bank digital currencies (sCBDCs) could offer improvements, but each comes with its own set of problems and conditions. Prior research reaches conflicting conclusions about the effect that each of these three financial assets has on systemic bank liquidity and fails to adequately address their net benefits relative to each other. This paper addresses these issues, including those connected to financial disintermediation, bank runs, outsourcing central bank activities, financial interoperability, cash equivalents, maturity transformation, required reserves, and changes in nations’ monetary bases. After addressing the strengths and weaknesses of fsCOINs and CBDCs, we conclude that sCBDCs provide the most significant net liquidity benefits when risks and returns are considered.

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Regulating Stablecoins as Private Money. A Critical Take on the EU Proposal between Liquidity and Safety

Cited by 2 publications

References 0 publications

‘All that glisters is not gold?’ The digital euro between myth and reality

‘All that glisters is not gold?’ The digital euro between myth and reality

Synthetic Central Bank Digital Currencies and Systemic Liquidity Risks

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