Stablecoins could offer central banks a shortcut, says New York Fed advisor

Stablecoins could offer central banks a shortcut to having their own digital currencies, a New York Federal Reserve advisor said at an event in London on Tuesday. 

“Instead of issuing a retail [central bank digital currency], central banks could support stablecoins by allowing them to be backed one-for-one with balances in a central bank account,” said Antoine Martin, a financial stability advisor at the Federal Reserve Bank of New York.

“Adapting our regulatory and legislative environment to support stablecoins is already a formidable task, but it is probably easier than managing a CBDC for retail use, especially as the private sector currently provides all retail digital means of payments on legacy technology,” he told policymakers at the Gillmore Centre Policy Forum at Warwick Business School in London, according to a statement. 

Martin drew a comparison between stablecoins and the Chinese payment platforms Alipay and Tenpay, describing them as “very close cousins.” When users of those services transfer money, the platforms need to hold the equivalent yuan in the Chinese central bank, much like stablecoins could.

A possible shift in thinking

The comment suggested a possible shift in thinking on stablecoins, as the New York Fed advisor had previously argued that stablecoins are “unlikely to be the future of payments,” according to a blog post published in February. 

The authors said stablecoins “that do not tie up liquidity are risky and less fungible,” suggesting that their use within a banking system would be unreliable. Existing forms of digital money are sufficient and could be adapted by issuing tokenized deposits, Martin and others added.

In another New York Fed blog post from April 2021, Martin co-wrote that stablecoins are “riskier” than CBDCs since “the value of the assets backing the coin could fluctuate, or these assets may not be present, despite promises made.” The authors also noted that, unlike CBDCs, “some stablecoins still try to avoid a central intermediary.” 

While the New York Fed recently launched a pilot “regulated liability network” for private banks to experiment with digital liabilities, the Federal Reserve has previously expressed a slower, calculated approach to developing a digital dollar.

“We do not see ourselves making that decision for some time,” Fed chair Jerome Powell said in September.

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