By Nathan Ferguson
A group of economists and analysts from the New York Federal Reserve stated on Monday that it was improbable for the stablecoins to be categorized as the payments’ future notwithstanding their quick surge in the previous years. In a column of Liberty Street Economics, which was published on the blog site of Fed, it was revealed by the group that though stablecoins were created to provide a better currency type as compared to the rest of cryptos such as Bitcoin, they may be labeled being a double-edged sword.
Stablecoins are known to be those cryptos the values of whom are pegged to specific commodities such as gold or the fiat currencies like the euro or the US dollar. Especially, the group – taking account of Rod Garratt (the former vice president of the NY Fed) as well as Michael Lee and Antoine Martin (the Fed economists) – brought out that the stablecoins having 100% support from perfectly secure assets could provide liquidity for the rest of the banking areas.
While the stablecoins have no support, are similar to the private banknotes belonging to the olden days, with being a less fungible and hazardous product. These private money types had several issues specifically due to the divergent and uncertain quality of assets and issuers supporting them, according to the group.
The tokenized deposits are advocated by the NY Fed instead of the circulation of stablecoins. Bank investors would be permitted to convert their investments out of and into digital assets known as the tokenized deposits being circulated over a venue having distributed ledger technology.
The claim of the depositor over the commercial bank thereof would be represented by the tokenized deposits just like the regular deposits. The respective stance is obvious in line with the strict approach of the institution regarding the regulation of crypto as parallel to the recent growth witnessed in stablecoins at nearly $156.6B in 2022’s January (after an elevation from $5.7B in 2019’s December). Certainly, stablecoins have started to evolve the cross-border payments as well as remittance sectors throughout several economies.
Among the rest of the countries, stablecoins are thought to be posing a danger to the financial stability as well as the economy of the United States. In the previous year, the Federal organizations of the US suggested that Congress should permit them to make a regulation of the stablecoin issuers just like the banks.