A Universal Stablecoin to Rule Them All?

Abstract

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The rise of digital currencies has led to the entry of non-bank institutions into the payments industry. Electronic money was introduced in the 1990s to offer a faster, more cost-effective, and user-friendly alternative to the bank-based payment system. Bitcoin, introduced in 2008, revolutionised payments through distributed ledger technology. In 2019, Facebook's Diem proposed a stable digital currency with the potential to become a widely accepted means of payment. Unlike non-stable digital currencies, stablecoins are backed by a pool of assets and can be claimed by the user. The European Union regulatory framework distinguishes between means of payment issued or guaranteed by public authorities with a sovereign fiat value and virtual currencies and stablecoins that lack fiat and crypto characteristics. Sovereign units of account-based means of payment are generally more in demand and can be considered money. The shift towards new digital currencies instead of cash and bank deposits may impact the bank-based payment system and disrupt monetary policy and financial stability. Governments, regulators, and central banks are concerned about global stablecoins. This chapter examines the impact of a global stablecoin on the current banking ecosystem, the monetary-financial system, and the euro area regulatory framework from the perspective of stablecoin emergence.