Research Paper Suggest Regulation for Privately Issued Stablecoins
2021 has so far seen an increase of pressure globally for regulators to start at least talk about crypto regulation. Some have taken actions against, some made it easier for crypto companies to operate.
One could say, it’s a crypto regulation open season The governments of different countries continues to announce regulations for cryptocurrencies and their trading. These regulations could either be in favor of or against cryptos.
El Salvador for example, has gone the pro-crypto route unlike most governments and accepted bitcoin as legal tender. Governments of countries like India and Nigeria remain strongly against cryptocurrencies. China has hit hard on crypto, especially with the mining ban, forcing large chunk of bitcoin miners to seek refuge it other countries.
Effective regulations that will not stifle the growth of cryptocurrencies continue to be a hot debate topic. Some lawmakers have shown support for cryptos, like U.S. city Mayor Scott Conger. While others continue to see them as a threat, as is the case of Senator Elizabeth Warren – perhaps due to lack of understanding.
A recent research paper has suggested that a government-issued CBDC as a standard stable coin would be the best way to approach this.
Fed & Yale: Privately Issued Currencies Are “Wildcats”
A research paper released by Fed and Yale researchers referred to privately issued currencies as wildcats. One could see the irony of this coming from Fed.
The paper touched on the topic of stablecoins, suggesting that the discussion of stablecoins is inevitable, as most cryptos trade against USDT.
The uninsured nature of the private coins was a recurring theme, and justified in its own way. With concerns being that government would eventually have to bail out citizens. Citing that when uninsured projects like this fail, there is nowhere else to turn but to governments.
Unregulated and private-issued currencies typically have no “legal backing.” Thus, using these coins puts the users at risk. As governments are not able to control these currencies. And hence, the authors worry the stablecoins would evolve to an ecosystem similar to the free banking era of the 19th century. Meaning that private entities can just issue their own currencies and the value of the currencies would depend on the size of the issuing parties.
How To Go About Crypto Regulation
The authors of the paper mainly put forward two proposals to regulate stablecoins. The first being that existing stablecoins should be converted to an equivalent of public money. This would be done by issuing these stablecoins via FDIC-insured United States banks. Or backing up existing stablecoins on a 1:1 basis with treasury bonds.
Simply put, going this way would put cryptos under the control of the government. As the FDIC is a governmental agency that provides deposit insurance for banks. Furthermore, treasury bonds are issued by governments.
The authors also put out another option. The issuance of a U.S. central bank digital currency (CBDC). And also, taxing existing stablecoins, in an effort to tax “private money” out of existence.
Any one of these paths taken would end up with cryptocurrencies under government control. Effectively eliminating the reason for cryptocurrencies in the first place, a decentralized monetary system controlled by no one. Basically eliminating a critical component of why cryptocurrencies are so vital.
