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Stablecoins: Business Model, Systemic Risks and Policy Perspectives

Author

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  • Srichander Ramaswamy

    (The South East Asian Central Banks (SEACEN) Research and Training Centre)

Abstract

The view that cryptocurrencies can be a substitute for fiat currencies in an interconnected and digitised world appears to be gaining some traction. Such views are reinforced by the high fee banks charge on cross-border money transfers and for certain other financial services. The belief that cryptocurrencies will define the future of money is entrenched among millennials, and this belief has been driving up the demand for cryptocurrencies. Stablecoins in this ecosystem has taken on the role of the unit of account for crypto assets and is instrumental in providing liquidity as well as in facilitating trading of crypto assets. To play this role, stablecoins are being extensively used as collateral in crypto transactions with trading platforms holding such collateral in omnibus accounts. The global regulatory community is taking note of this and has expressed concerns that as the market for stablecoins and cryptocurrencies grow, potential risks to the broader financial system from runs on stablecoins can be damaging. This paper reviews these developments and provides some suggestions for policy drawing on the regulatory debates and initiatives from standard setters to address the risks identified.

Suggested Citation

  • Srichander Ramaswamy, 2024. "Stablecoins: Business Model, Systemic Risks and Policy Perspectives," Working Papers wp54, South East Asian Central Banks (SEACEN) Research and Training Centre.
    • Handle: RePEc:sea:wpaper:wp54
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    File URL: https://www.seacen.org/publications/RePEc/702001-100493-PDF.pdf
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    References listed on IDEAS

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    1. Markus K. Brunnermeier & Harold James & Jean-Pierre Landau, 2019. "The Digitalization of Money," Working Papers 2019-13, Princeton University. Economics Department..
    2. Naohiko Baba & Robert N McCauley & Srichander Ramaswamy, 2009. "US dollar money market funds and non-US banks," BIS Quarterly Review, Bank for International Settlements, March.
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    Cited by:

    1. Perez Riaza, Baptiste & Gnabo, Jean-Yves, 2025. "From depegs to jumps: The role of stablecoin instabilities in crypto market dynamics," Journal of International Money and Finance, Elsevier, vol. 155(C).

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    More about this item

    Keywords

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    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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