In line with the BIS paper, there’s potential to embed regulation in steady coin methods
According to economists at the Bank for International Settlements (BIS), regulatory responses to private, “global” stable coins like the scales must take into account the technology's potential in payments.
In a new working paper released Tuesday, Raphael Auer and Jon Frost, as well as Melbourne Law School finance attorney Douglas Arner, drew a line between centralized and decentralized stablecoins, stating that Libra's potential is quickly being adopted by hundreds of millions on Facebook product users can mean regulators have to adapt quickly.
However, the need to protect economies, the monetary system and consumers "does not preclude the authorities from adopting innovations themselves". According to the paper, global stablecoins offer advantages in particular for cross-border payments and can call into question existing payment methods in e-commerce.
Stable coins are generally cryptocurrencies that try to maintain a value tied to fiat currencies such as the US dollar or other assets.
The paper argues that technology in general has the potential to increase oversight and provide the tools necessary to implement and enforce financial regulation. Stablecoins in particular offer the possibility of implementing monitoring requirements and frameworks in the systems in which they are operated, thus paving the way for “embedded monitoring”.
"The direct automated provision of data as a license or registration requirement for digital payment systems and markets offers an important opportunity to make better use of the technology to achieve regulatory and supervisory goals and to reduce costs for market participants," the authors say.
Stable coins, especially decentralized ones, also offer the possibility of integrating a “robust money instrument” into blockchain applications, for example for programmable money.
The paper also examined whether alternative payment methods such as central bank digital currencies or fast payment systems are better suited to the "functions that stablecoins want to target" and concluded that they could be more effective "in many cases".
However, back frameworks for monitoring and monitoring transactions directly in stablecoin systems have the potential to improve the achievement of regulatory goals, according to the authors.
Ironically, the technology was "originally … designed to obviate the role of regulation," they wrote.