Amit Chaudhary, Ganesh Viswanath-Natraj, 13 May 2022

On 10 May 2022, the price of TerraUSD, an algorithmic stablecoin operating on the Terra blockchain, fell and it lost its peg to one US dollar. Using the devaluation of the TerraUSD peg as a case study, this column shows how algorithmic stablecoins are vulnerable to speculative attacks when the system is under-collateralised. The authors point to solutions – stable collateral and over-collateralisation – to stabilise the peg.

Chenzi Xu, He Yang, 03 May 2022

Innovations in private money creation, such as stablecoins, can be economically useful because they improve efficiency in the payments system. However, if these currencies are not fully ‘stable’, uncertainty over their value may be a source of transactions friction that have real costs. The column discusses how the National Banking Act of 1864 in the US provides a natural experiment for evaluating the effects of stabilising the value of private money. The act introduced a new type of private money that was fully stable for the first time. Gaining access to the stable money generated growth in economic sectors that were sensitive to transaction costs. 

Erik Feyen, Yusaku Kawashima, Raunak Mittal, 19 March 2022

Crypto-asset holdings and transaction volumes have grown rapidly around the world, and crypto assets are increasingly regarded as an emerging asset class. This column finds that transaction volumes across countries appear to be driven by globally relevant factors such as US longer-term inflation expectations, US real Treasury yields, and gold and crypto-asset prices, rather than recent country-level macroeconomic developments. Volumes also tend to be higher in countries with higher information and communications technology penetration and greater reliance on remittances.

Brunello Rosa, Alessandro Tentori, 26 June 2021

Digital currencies are becoming increasingly present on both research and policy agendas, including for central banks. This column explores the geopolitical role of central bank digital currencies, with a particular focus on China. It argues that such currencies could be useful as a means for central banks to record transactions in an increasingly cashless economy and could help improve central banks’ monetary transmission. Nonetheless, the risk of cyber-attacks should not be overlooked.

Raphael Auer, 27 April 2020

The rise of stablecoins and asset-backed tokens could drive the development of financial markets via new forms of transparency and data credibility. This column uses the revised proposal for the Libra global stablecoin as an example to illustrate possibilities for supervisors to harness information in distributed ledger based-finance via ‘embedded supervision’. The aim is to increase the quality of data available to supervisors and to reduce administrative costs for firms. 

Barry Eichengreen, Ganesh Viswanath-Natraj, 25 April 2020

Earlier this month the Libra Association issued a new White Paper updating its paper of June 2019.  This column argues that while the authors of the paper now understand that to succeed, their project must address economic and political concerns, they have done nothing to address worries about currency substitution.  A new proposed capital buffer is underspecified.  A key market in Libra futures or forwards is missing, as is a Libra lender of last resort.

Erik Feyen, Jon Frost, Harish Natarajan, 16 January 2020

Proposals for global stablecoins have put a welcome spotlight on deficiencies in financial inclusion and cross-border payments and remittances to emerging market and developing economies. This column, part of the Vox debate on digital currencies, argues however that stablecoin initiatives are no panacea. Moreover, they pose particular development, macroeconomic and cross-border challenges for emerging market and developing economies. It remains to be seen whether stablecoins can offer a decisive comparative advantage over fast-moving fintech innovations in these countries that are built on or improve the existing financial plumbing.

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