Stablecoins are unlikely to be the future of payments despite their growing market value in the last two years, according to a Federal Reserve Bank of New York
The first kind of stablecoin that’s backed by safe and liquid assets “unnecessarily” ties up liquidity — making them unavailable for other uses in the banking system — while the second type that isn’t fully backed resembles private bank notes, which have historically failed, authors including former New York Fed Vice President Rod Garratt and economists Michael Lee and Antoine Martin write.
Stablecoins, typically pegged to a government-backed currency such as the dollar or euro, have become a vital part of the crypto universe because investors use them to buy and sell other digital currencies that are more volatile. Their market capitalization rose from $5.7 billion in late 2019 to more than
The blog authors wrote that if distributed ledger technology is here to stay, then having banks issue tokenized deposits would be a more “desirable” and “realistic starting point,” given customers can use them in existing payment infrastructures and the approach reduces money laundering risks.
The post, published on the New York Fed’s Liberty Street Economics blog page, doesn’t necessarily reflect the position of the bank or the Federal Reserve System.
“Central bank actions over the last century have resulted in a well-functioning banking and payment system. Why not take advantage of that, and issue tokenized deposits?” the authors wrote. “Bank depositors would be able to convert their deposits into and out of digital assets — the tokenized deposits” that can circulate on a distributed ledger platform.
The Federal Reserve discussed developing its own coin in a
