## From Stablecoins to Central Bank Digital Currencies

_IMF Blog, September 26, 2019_

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## Bibliographic details
- Authors: Tobias Adrian, Tommaso Mancini-Griffoli
- Published: September 26, 2019

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### Overview
- Authors: Tobias Adrian, Tommaso Mancini-Griffoli
- Publication date: September 26, 2019
- Core thesis: Privately issued stablecoins are encroaching on traditional forms of money (cash and bank deposits); policymaker rules and actions will shape payment methods, financial sector structure, and risks.
- Context: This blog is the second in a two-part IMFBlog series on digital currencies and follows the IMF’s first Fintech Note discussion of synthetic central bank digital currency (sCBDC).

### The regulatory imperative
- Stablecoins are cryptographic tokens designed to be easily exchanged and to benefit from minimal price volatility relative to cash.
- Key risks identified:
  - Uncertainty over whether stablecoins are actually fully-backed and hence redeemable on demand.
  - Dependence on the safety and liquidity of underlying assets backing coins.
  - Legal protection of assets against other creditors if the stablecoin provider becomes bankrupt.
  - Vulnerability to runs (mass redemptions) by coin-holders.
- Regulatory options proposed:
  - Require stablecoin providers to hold safe and liquid assets and sufficient equity to protect coin-holders from losses.
  - Regulate stablecoin providers even if they are not traditional banks, acknowledging the complexity of doing so.

### Central bank backing
- Policy alternative: require stablecoin providers to fully back coins with central bank reserves.
- Observed precedent: the People’s Bank of China requires AliPay and WeChat Pay to back balances with central bank reserves.
- Conditions mentioned for central banks to give fintech access to reserves: anti-money laundering safeguards, connectivity between coin platforms, security, and data protection.
- Effects and trade-offs of central-bank-backed stablecoins:
  - Would transform stablecoin providers into narrow banks (institutions that do not lend but only hold central bank reserves).
  - Could intensify competition with commercial banks for customer deposits, raising questions about the social price tag.
  - Advantages: enhanced stability (backing in perfectly safe and liquid assets), clearer regulatory fit, seamless exchange among different stablecoins via central bank settlement, enhanced competition among providers.
  - Additional potential benefits: support for domestic payment solutions against foreign-currency stablecoin monopolies and improved monetary policy transmission if currency substitution pressures are reduced and interest is paid on reserves held by stablecoin providers.

### Next step: a central bank digital currency?
- Definition and mechanism:
  - If stablecoin providers held client assets at the central bank, clients would indirectly hold and transact in central bank liabilities—this is the essence of a “central bank digital currency.”
  - In the proposed model, coins would remain liabilities of private issuers; client assets would need protection against issuer bankruptcy.
- Synthetic central bank digital currency (sCBDC):
  - Described as a public-private partnership where central banks provide trust and efficiency while private firms handle innovation, customer interaction, and remaining payment-chain steps under supervision.
  - sCBDC is contrasted with a full-fledged CBDC that would require central banks to undertake app development, brand management, technology selection, and direct customer interactions—activities that can be costly and risky for central banks.
- Decision factors for central banks:
  - Each central bank would weigh payment system stability, financial inclusion, and cost efficiency in deciding whether to adopt an sCBDC.
  - sCBDC presented as a potentially attractive option for central banks that wish to offer a digital alternative to cash.

### Conclusions and implications
- The world of fiat money is in flux and innovation will transform banking and money.
- Policymakers will not remain passive; their choices will arbitrate how payments evolve and how financial-sector risks are allocated.
- sCBDC offers a middle path combining central-bank trust with private-sector innovation, but legal protections for client assets and careful regulation will be essential.
- The blog reiterates that regulatory clarity, financial stability, and protection against runs are central concerns in shaping the future of stablecoins and central bank digital currencies.

### About the blog
- IMFBlog is a forum for views of IMF staff and officials on pressing economic and policy issues.
- The IMF is based in Washington D.C. and is an organization of 191 countries, working to foster global monetary cooperation and financial stability.
- The views expressed are those of the author(s) and do not necessarily represent the views of the IMF and its Executive Board.

*Source: From Stablecoins to Central Bank Digital Currencies (IMFBlog), September 26, 2019.*

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## References

- [blog](https://blogs.imf.org/2019/09/19/digital-currencies-the-rise-of-stablecoins/)
- [Fintech Note](https://www.imf.org/en/Publications/fintech-notes/Issues/2019/07/12/The-Rise-of-Digital-Money-47097)
- [paper](https://www.imf.org/en/Publications/Staff-Discussion-Notes/Issues/2018/11/13/Casting-Light-on-Central-Bank-Digital-Currencies-46233)

_Source: https://www.imf.org/en/blogs/articles/2019/09/26/from-stablecoins-to-central-bank-digital-currencies_