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Stablecoins and the Future of Money: Economic Principles and Policy Implications

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  • Peter Bofinger

Abstract

The paper discusses the functions and the potential of stablecoins as an innovative payment system: Stablecoins constitute a new payment object which can be used for a direct exchange on the infrastructures provided by blockchains and crypto exchanges. For the discussion of stablecoins It is important to distinguish between bond-based and bank-based stablecoins: While the former use bank deposits as collateral, the latter use short-term treasuries. Bond-based stablecoins have an attractive business model. They enable direct international.payments, i.e. without an intermediary, based on a safe transaction asset. Market dynamics reveal significant network effects: the system is characterized by the US dollar as the dominant currency denomination, a duopoly of two issuers, and a small number of blockchains. In the last few years, the dominant issuers have demonstrated resilience even during periods of economic shocks. The macroeconomic effects of bank-based stablecoins are limited, since they cannot create loans. However, bond-based stablecoins can create money by purchasing government bonds. While bank-based stablecoins create financial stability risks by interconnecting banks and stablecoin issuers, bond-based stablecoins do not present this risk. The Digital Euro is not an alternative to stablecoins: Its use is limited to the euro area, it is designed for retail payments and it only allows asset holdings for private households.

Suggested Citation

  • Peter Bofinger, 2025. "Stablecoins and the Future of Money: Economic Principles and Policy Implications," IMK Studies 100-2025, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    • Handle: RePEc:imk:studie:100-2025
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    References listed on IDEAS

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    1. Milton Friedman, 1959. "The Demand for Money: Some Theoretical and Empirical Results," NBER Chapters, in: The Demand for Money: Some Theoretical and Empirical Results, pages 1-29, National Bureau of Economic Research, Inc.
    2. Rashad Ahmed & Iñaki Aldasoro, 2025. "Stablecoins and safe asset prices," BIS Working Papers 1270, Bank for International Settlements.
    3. Morten Linnemann Bech & Rodney Garratt, 2017. "Central bank cryptocurrencies," BIS Quarterly Review, Bank for International Settlements, September.
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    Cited by:

    1. König, Jörg & Meyer, Tim, 2026. "Alternativen zum digitalen Euro," Positionspapiere 17, Stiftung Marktwirtschaft / The Market Economy Foundation, Berlin.
    2. König, Jörg & Meyer, Tim, 2026. "Alternatives to the digital euro," Positionspapiere 17, Stiftung Marktwirtschaft / The Market Economy Foundation, Berlin.

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