Working Paper - Whither Stablecoins?
The issue is not only whether stablecoins or crypto tokens improve the monetary system or not: it is fundamentally about who controls those instruments
The future of Europe’s payment systems is open and the opportunities are significant. What is needed is pragmatism and a firm focus on Europe’s overriding priorities: strengthening competitiveness and upholding monetary sovereignty. Success on both fronts may also increase the attractiveness of the euro internationally
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Executive Summary
Stablecoins have attracted a lot of attention in recent economic debates. Opinions are divided: according to some, they are the frontrunners of a new monetary system, freer, efficient and inclusive.
For others, they are another example of financial madness, unnecessary and dangerous. This somewhat overstates the debate, but not by much.
Framed in these terms, however, the debate misses the point. The issue is not only whether stablecoins or crypto tokens improve the monetary system or not, performing a useful role from a technical viewpoint: it is fundamentally about who controls those instruments. Who sets the rules, governs the supply, controls and uses the information they generate. The matter is political at least as much as it is economic and financial.
As such, it cannot be separated from the broader geopolitical question of the day, namely, what new arrangements will emerge from the crisis of the rule-based international order that we have seen unfolding – gradually, then suddenly, as Hemingway would say – in recent years. Monetary developments are a sideshow to the main act and cannot be understood except in relation to it.
This essay discusses technical and political factors that shape the future of stablecoins as means of payment.
We start (section 2) by looking at the initiatives by the Trump administration which, at the outset, promoted stablecoins as an entirely new private form of money, potentially complementing, or even replacing, traditional payment means.
In section 3 we examine whether stablecoins can be a “good” monetary instrument, in light of monetary theory and practice. We conclude that stablecoins perform this function only imperfectly, and only if properly regulated.
Section 4 compares stablecoin regulation in three jurisdictions: the US, the EU and the UK, highlighting their “regulatory philosophies”, strengths and weaknesses. Section 5 discusses political and economic influences driving current US policymaking in this domain, and their implications.
Section 6 concludes with a focus on Europe. After building advanced payment infrastructures in the early years of the ECB, more recently the EU has largely been a follower in digital payments.
This may now change: new projects such as Pontes and Appia may result in another leap forward. While upholding its principles, the EU’s priorities are to strengthen its competitiveness and defend its monetary sovereignty. In this way it can also enhance the euro’s attractiveness as an international currency.
Ignazio Angeloni
Ignazio Angeloni is a IEP@BU fellow. In 2019-2022 he was a Senior Research Fellow in the Harvard Kennedy School’s Mossavar-Rahmani Center for Business and Government. From 2014 to 2019, he was a member of the ECB Supervisory Board.
In 2012-2013, Ignazio was Director General for Financial Stability at the ECB; in that capacity, he coordinated the establishment of the new banking supervision at the ECB.
He is the leading author of the IEP Bocconi report Feasible Steps to Finance Innovation in Europe: Six Proposals to Strengthen EU Capital Markets
Report Chair: Ignazio Angeloni
Rapporteur: Andrea Cavallini
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Catherine De Vries, IEP@BU President
Daniel Gros, IEP@BU Director
Sylvie Goulard, IEP@BU vice-President, Professor of Practice in Global affairs at SDA Bocconi School of Management
Silvia Colombo, IEP@BU Deputy Director
Carlo Altomonte, Associate Professor at Bocconi University and Associate Dean for Stakeholder Engagement Programs at SDA Bocconi School of Management
Arnstein Aassve, Professor in Demography at Bocconi University
Valentina Bosetti, professor of Environmental and Climate Change Economics at Bocconi University
Elena Carletti, Dean for Research and Professor of Finance at Bocconi University
Eleanor Spaventa, Professor of European Union Law at Bocconi Law School