Professor Gary B. Gorton from Yale partnered up with Jeffery Zhang from the Federal Reserve to write a paper that focuses on how stablecoins can be regulated.
The paper is named ‘Taming Wildcat Stablecoins’ is a result from the extensive research on Digital currencies by the Federal Reserve in efforts to properly implement regulations on stablecoins. The paper was submitted on the eLibrary hosted by SSRN on the 17th of July.
Both researchers discuss that the stablecoins, indirectly known as privately developed currencies, still have not proved their effectiveness when it comes to being a proper trade currency. This is mainly because of low adoption and volatility. Both authors then discuss possible solutions to the problems of stablecoins, calling them ‘systematic risks of stablecoins.’ After an extensive study of the history of stablecoins and keeping the free baking era in mind, the authors said that there are two choices that can be made in successful regulation of such private currencies, it is to either let stablecoins have the same level as traditional currency or to come up with CBDCs, which allows removing taxes from stablecoins.
In light of the first choice, the government can make sure that stablecoins are only available through FDIC-insured banks or make sure that all stablecoins are completely collateralized using Treasuries in the Federal Reserve.
Major Stablecoin Discussion Meeting
The surprising thing about the paper was noted by Caitlin Long from Avanti, that it had been released just before the great discussion being held between the Treasury Secretary, Janet Yellen, and Authorities regarding the use and regulation of stablecoins in the market. Janet Yellen will be addressing the President’s Working group on the advantages and risks of using such private currencies, and hopefully, some results will come out, mainly focused on regulation.
Stablecoins have been having quite an interest boom in the market. Feds Chairman Jerome Powell has demanded strong regulations on the private currencies and said that cryptocurrencies have less chance to become a standard payment method because of their ever-changing price volatility. According to researchers from the Fed, CBDC is being considered as a much better alternative, but it seems that the use of a Digital Dollar is still not coming soon anytime.