In a speech given at the Future of Money in the Digital Age, Lael Brainard, a member of the Board of Governors of the Federal Reserve System, outlined a few key aspects of stablecoins that may pose significant challenges to the existing business models of not only large financial institutions but also central banks and their monetary policies.
"In the extreme, widespread migration to one or more global stablecoin networks could disintermediate the role of banks in payments.," said Brainard.
Brainard also specifically mentioned the potential for widely-adopted stablecoin networks to put pressure on the central banks' balance sheets as consumers shift from physical cash to using stablecoins for day-to-day needs. Brainard didn't specifically mention which existing stablecoins could pose a threat, but he did single out Facebook's Libra as the single biggest thread due to the company's global reach:
"What sets Facebook's Libra apart is the combination of an active-user network representing more than a third of the global population with the issuance of a private digital currency opaquely tied to a basket of sovereign currencies."
Stablecoins have also attracted the attention of EU monetary authorities. EU’s financial services commissioner Valdis Dombrovskis told EU policy makers he intends to create a new rules for stablecoins, especially Libra.
Although Libra has attracted the most scrutiny from financial regulators in Europe, Asia and the United States due to Facebook's global footprint and history of privacy abuses, other stablecoins are already being accepted by companies and smaller nations.
Just yesterday, the government of Bermuda announced it would accept tax payments in USDC, a fully collateralized stablecoin pegged to the US dollar, which runs on the public Ethereum blockchain and is operated by the CENTRE Consortium, a joint venture by Circle Financial and Coinbase.
Image credit: 1
