A cryptoasset is not money (hence the term cryptocurrency is misleading) and has no intrinsic value because it has no backing. It can have extrinsic value, in the sense that people like to collect and own them, just as they like to collect and own all sorts of things, but that extrinsic value is highly unstable and could be nothing. I have met crypto enthusiasts who take the libertarian view that something backed by nothing has more confidence in value than something backed by the state. Suffice to say, that is not a view I agree with. With stablecoins, there will be backing assets, and therefore they could have intrinsic value. An immediate public interest question therefore is what will it take for them to be trusted as money, bearing in mind that while they will primarily serve the purpose of a means of exchange, any holding of them will also be a store of value, even if this is an incidental objective? Stablecoins have the potential to be systemic in terms of their importance for the financial system and its stability. As our paper describes, the precise definitions and mean of ‘systemic’ in this context needs further work, but it will be linked to their ability to scale up and grow rapidly, and to become widely used as a trusted form of sterling-denominated payments by households and non-financial businesses.
The regulatory model for stablecoins could include different applications of these features – as long as it offers equivalent protections to those for commercial bank money. As part of this, a key requirement will be to ensure that, unless the stablecoin is operating as a bank, the backing assets for stablecoins cover the outstanding coin issuance at all times. An alternative to a private stablecoin, but not a mutually exclusive one would be central bank digital money in the form of a central bank digital coin (CBDC). Central bank money has a unique role in anchoring value and promoting confidence in monetary systems. A CBDC could therefore play an important role in sustaining, and potentially expanding retail access to central bank money. I have discussed the public interest in the safety and security of money. But there is another very important public interest in this area which goes to the heart of the monetary and financial system. I mentioned earlier that commercial bank money combines in one place – bank accounts – the store of value and means of payment functions of money and in doing so enables lending to the real economy. What if new forms of digital money – Stablecoins or CBDC – result in a large scale displacement of commercial bank money which means that a higher fraction of money in the economy must be backed by high-quality liquid assets rather than by loans to the real economy, with this being necessary to preserve the stability of a now more fragmented financial system.