Posted 10 months ago | by Catoshi Nakamoto

Yale and Federal Reserve researchers have published a document entitled: “Taming Wildcat Stablecoins” on SSRN’s eLibrary, proposing how to address “systemic risks created by stablecoins, including regulating stablecoin issuers as banks and issuing a central bank digital currency.”

AdobeStock 194309303 Yale And Fed Researchers Publish Document On Stablecoins Ahead Of Biden Admin Meeting Discussing Regulation

“Cryptocurrencies are all the rage, but there is nothing new about privately produced money. The goal of private money is to be accepted at par with no questions asked. This did not occur during the Free Banking Era in the United States—a period that most resembles the current world of stablecoins. State-chartered banks in the Free Banking Era experienced panics, and their private monies made it very hard to transact because of fluctuating prices. That system was curtailed by the National Bank Act of 1863, which created a uniform national currency backed by U.S. Treasury bonds. Subsequent legislation taxed the state-chartered banks’ paper currencies out of existence in favor of a single sovereign currency,” the abstract of the document reads.

The joint report which is nearly 50 pages was written by Gary B. Gorton, Yale School of Management; National Bureau of Economic Research (NBER) and head of Yale Program on Financial Stability along with Jeffery Zhang who serves on the Board of Governors of the Federal Reserve.

The document mentions existing popular stablecoin solutions, including — Tether, USDC, TrueUSD, Paxos, Gemini dollar, and Facebook’s Diem to name a few stablecoins examined.

The paper is split into four sections, Part I provides the detailed definition of stablecoins. Part II gives a historical overview discussing money market funds and the trajectory of banking history. Part III goes even further into history explaining the Free Banking Era, the consequences of previous regulation, and the eventual demise of the system at the hands of the National Bank Act. Part IV presents policies to address the no-questions-asked (NQA) problem and risks presented by stablecoins.

Both Zhang and Gorton state that “private money is now upon us—in the form of stablecoins like “Tether” and Facebook’s “Diem” (formerly “Libra”).” Interestingly, just like the American Banking Association document that Bitboy Crypto previously reported on, the paper by Yale and the Fed separates the digital asset market into separate categories. However, unlike ABA, the authors argue that Bitcoin is not backed by anything. This is categorically false as Bitcoin is backed by the miners securing the hash rate on the network in addition to its limited supply.

These can roughly be divided into three categories. The first includes cryptocurrencies that are not backed by anything, like Bitcoin. We call these fiat cryptocurrencies. Their defining feature is that they have no intrinsic value. Second, there are specialized utility coins, like the JPMorgan coin that is limited to internal use with large clients.5 Finally, there are stablecoins,” which aspire to be used as a form of private money and so are allegedly backed oneforone with government fiat currency (e.g., U.S. dollars).”

The authors argue that despite digital assets being new, private money isn’t. They state history has proven that “private money is a subpar medium of exchange and is subject to runs.”

The report offers suggestions on how to regulate the stablecoin industry presenting two solutions.

In general, we observe that the federal government has two sets of options: (1) convert stablecoins into the equivalent of public money by (a) bringing stablecoins within the insuredbank regulatory perimeter or (b) requiring stablecoins to be backed oneforone with Treasuries or reserves at the central bank; or (2) introduce a central bank digital currency and tax private money out of existence.”

Still, the pair declared that “Stablecoins are a new form of private money that can add value in crossborder transactions for firms and banks.” Although, they note that stablecoins are “still in their early days and, so far, it is unclear how widely used they are as money or have a convenience yield.”

As Founder and CEO of Avanti Bank and Trust, Caitlin Long highlighted on Twitter this document comes as the U.S. Treasury Secretary Janet Yellen has convened regulators to meet on Monday. She added that a “footnote in the document references tomorrow’s big President’s Working Group meeting.”

Last week, Yellen said the following about the meeting.

“Bringing together regulators will enable us to assess the potential benefits of stablecoins while mitigating risks they could pose to users, markets, or the financial system,” Yellen said in a statement. “In light of the rapid growth in digital assets, it is important for the agencies to collaborate on the regulation of this sector and the development of any recommendations for new authorities.”

Yellen also stated, “In light of the rapid growth in digital assets, it is important for the agencies to collaborate on the regulation of this sector and the development of any recommendations for new authorities.”

The paper’s release also comes after Fed Chair Powell called for stablecoin regulation last week in a congressional hearing stating, a “strong regulatory framework” was needed.

“We have a tradition in this country where the public’s money is held in what is supposed to be a very safe asset. We have a pretty strong regulatory framework for bank deposits for example or money market funds.” Powell said during a virtual hearing before the House Financial Services Committee. “That doesn’t exist for stablecoins, and if they’re going to be a significant part of the payments universe…then we need an appropriate framework, which frankly we don’t have,” he added.

The Fed Reserve has also said that it plans to release a report on cryptocurrencies, CBDCs, stablecoins, and other digital assets later this year.

U.S. Senator Elizabeth Warren (D), recently stated that she is giving the Security and Exchange Commission until the end of July to figure out its role in regulating digital assets. Warren who chairs the Senate Banking Committee’s Subcommittee on Economic Policy said in a letter to SEC Chair Gary Gensler that “lack of common-sense regulations has left ordinary investors at the mercy of manipulators and fraudsters.”

Bitcoin is currently trading at {FIAT:$31,677.33] DOWN -0.4% in the last 24 hours according to Coingecko at the time of this report.

About Catoshi Nakamoto

c6ea0c3794492f30883e516d39b2597a?s=90&d=blank&r=g Yale And Fed Researchers Publish Document On Stablecoins Ahead Of Biden Admin Meeting Discussing RegulationActivist/Journalist, former writer - We Are Change, The Mind Unleashed, Coinivore, others. Currently writing for - Activist Post and Bitboy Crypto. Not Right or Left Apolitical. I Care About Truths (CATS.) Cryptocurrency enthusiast, I mined and lost 100+ BTC in 2010-2011. I work with - Bitboy, SoMee, CEEK, Presearch, and W3BT aka FMW Media Group. Friend of mostly everyone who isn't a dick. Just A Cool Cat.