says crypto stablecoins shouldn like casino

September that a stablecoin could be considered a security and therefore required regulation by the SEC.

Following thereportby the Treasury on stablecoins, Gensler compared stablecoins to a teenager, noting that he believes the currency won’t reach “adulthood” without being accompanied by regulatory oversight such as money laundering regulations and tax compliance.

The government report released prior to Gensler’s comments noted:

“…a consistent and comprehensive regulatory framework is needed both to increase transparency into key aspects of stablecoin arrangements and to ensure that stablecoins function in both normal times and in stressed market conditions”.

Stablecoins have grown rapidly since their inception, with a current market capitalization by the largest stablecoin issuers exceeding $127 billion according to the Treasury report.

As currently being considered, true stablecoin regulation should include: requirements for permissible reserve assets and for the issuer to honor direct redemption claims; and limits on risky maturity transformation activities. Laws that bolster reserve segregation and coin holder claims in bankruptcy or insolvency should be considered. Through a sensible regulatory approach, true stablecoins can fulfill their promise without introducing new risks.

The question for central banks and regulators then becomes which combination of the three approaches can also improve competition, lower cost, and increase access to the financial system.

While it may be tempting to preserve the status quo, such an approach is unlikely to deliver the same benefits.

Blockchain technology can reshape market structure and improve competition.

Technology-neutral regulation that follows a “same risks, same rules” approach can lift quality standards and encourage competition between safe solutions.

Different solutions will present different challenges in terms of how they may accelerate the unbundling of payments, credit, and financial services. While such unbundling is eventually inevitable, we’re already starting to see how different approaches might play out. By deploying the digital renminbi, China is the first country to make a bold statement about the future of global payments and the type of data the government should have access to.

Says crypto stablecoins shouldn like casinos

While it is hard to defend a system where 15% of U.S. adults in the bottom 40% of the income distribution are unbanked and where low-income account holders — particularly Black and Hispanic customers — pay more than $12 a month for basic access to the financial system, it is also clear that new technology can bring new risks.

Making major changes to how money works is complex, but governments do not have to tackle this all at once. In fact, such an approach is unlikely to succeed. The public sector, both in the United States and elsewhere in the world, has not been particularly successful in deploying digital services.

Says crypto stablecoins shouldn like casinoz

It’s essentially a substitute for gold rather than for the dollar.”

Powell’s words provided some of the most direct Fed opinions on Bitcoin in recent weeks and added to the perspective offered in 2019. They also come weeks after incoming Treasury Secretary Janet Yellen made clear her misgivings about decentralized cryptocurrencies. As with Yellen, Powell sparked a burst of negative market sentiment, with bitcoin dropping almost $1,000 following his response.

Picking up on Powell’s comments, Agustin Carstens, general manager of the BIS, said that “there is one particular issue: It cannot fail.
It cannot fail at any particular point in time. To ensure that type of resilience, it takes a lot.” Which may be why the western central banks are happy to allow China to become the first nation to launch a digital currency as we discussed in this post.

They could connect unbanked or underbanked segments of the population to the financial system. But without robust legal and economic frameworks, there’s a real risk stablecoins would be anything but stable. They could collapse like an unsound currency board, “break the buck” like money market funds in 2008, or spiral into worthlessness.
They could replicate the turmoil of the “wildcat” banks of the 19th century.

While the pros and cons of stablecoins may be debatable, their rise isn’t. More than $113 billion in coins have already been issued. The question is what should be done about them — and who should be responsible for doing it.
Responses range from arguing that the current system is fine, to accelerating research into CBDCs, to emphasizing that stablecoins may be a natural evolution of the combination of public and private money that we have relied on for centuries.

Reserve assets should be denominated in the currency of the reference asset, remain highly liquid during a crisis, and incur extremely small losses in a run or stressed market conditions.

True stablecoins are a variation on the concept of narrow banks. They should hold 100% reserves in high quality, liquid assets — like U.S. treasuries or cash at the Federal Reserve — against their coin liabilities, plus an additional capital cushion against operational losses, asset price declines, or a run. Like narrow banks, true stablecoins should not engage in maturity transformation.

Furthermore, they should isolate reserve assets from their other assets, so that in insolvency or bankruptcy, coin holders can be prioritized over other creditors.

As with narrow banks, the economic benefits of true stablecoins may be … narrow. It is expensive to hold full reserves at scale.

The growth and expansion of stablecoins increased throughout 2021 “despite concerns about regulatory compliance, quality and sufficiency of reserve assets, and standards of risk management and governance,” a statement from the global organization formed by the G20 in 2009 read, and very certain to cause harm to global financial security.

Stability in a world that’s already volatile?

Stablecoins’ role as the financial villain may appear quite strange for an e-money whose initial desire in the first place was to “put the brakes on the volatility of Bitcoin and to rightly bring a bit of stability into this sphere,” says Nathalie Janson, specialist, and economist in cryptos at Neoma Business School.

Stablecoins are cryptocurrencies whose prices never differ since they are indexed using a base reference such as the United States dollar.

Cash is a liability of the central bank. While there is digital, central bank money in the United States already, only financial institutions can access it.

A CBDC would make digital cash available to the public. A vibrant debate is taking place about whether a digital dollar is necessary, useful, or even sensible. The answer largely depends on key design decisions about how the CBDC is distributed, to whom it is made available, and whether it should carry an interest rate.

If a CBDC is distributed only through Federal Reserve members, the solution would have similar reach and trade-offs as deposit coins.
And it would place the Federal Reserve in competition with its members. The tension arises because a CDBC would be the safest asset available.

Stating the obvious, Powell said that “a dollar CBDC would have potentially large implications here and around the world”, although his next comment – that crypto is more like gold than the dollar – would spark much heated debate across the financial world as the following matrix reveals.

And speaking of Crypto, Powell had a few choise words about bitcoin which the Fed loves to bash, saying that “crypto assets – we call them ‘crypto assets’ – they’re highly volatile, see Bitcoin, and therefore not really useful as a store of value, and they’re not backed by anything,” he said.

“They’re more of an asset for speculation, so they’re not particularly in use as a means of payment. It’s more a speculative asset.

It’s the result of a speedy rise in worth: the market worth of the entire stablecoins was standing at around €157 billion USD in December 2021, “an increase from $5.6 billion at the start of 2020”, according to the FBS.

Tethers, for instance, seem to have increased in value, something that has made financial authorities in many places across the globe become somewhat concerned. In a meeting held on August 2021, the United States Federal Reserve voiced its concerns on the dangers of stablecoins. “The questions being asked are how to be sure that [the creators] really have the necessary reserves and whether Tether is about to fail,” further stated Vincent Boy.

One of the most telling pieces of evidence is the significant rise in the popularity of stablecoins, signaling the “democratization of investments in cryptocurrency,” said Boy.

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