The potential risks and global governance of stablecoins: a dual perspective based on economics and politics

Stablecoins are both economically pro-cyclical and political super-sovereignty. The former stemming from the coin stabilisation mechanism of maturity mismatches and rigid payments while the latter stemming from the decentralised attributes of blockchain technology and the relative openness of many countries' regulatory policies. These two features lead to potential impacts on financial stability and national sovereignty. This paper makes governance recommendations at the micro and macro levels respectively. At the micro level, stablecoins should be defined as M2 money, a bankruptcy remote system and a redemption suspension mechanism for stablecoins centred on fair value calculations should be established to safeguard transactions and soften rigid payments. At the macro level, the stablecoin business should be subsumed under a money market fund licence, the disclosure requirements should be expanded through the introduction of GIPS standards, and IOSCO should take the lead in promoting international regulatory cooperation and global governance of stablecoins.