Stablecoins and Central Bank Digital Currencies: Policy and Regulatory Challenges

TL;DR

This paper analyzes the policy and regulatory challenges of stablecoins and central bank digital currencies in Asia, highlighting risks, obstacles, and uncertainties affecting their adoption and utility.

Contribution

It offers new analysis of devaluation risks for stablecoins and discusses the hurdles to cross-border CBDC use, providing a critique of their potential in Asia.

Findings

Devaluation risk estimates for Tether vary over time.

Cross-border CBDC use faces significant obstacles.

Uncertainties hinder digital currency initiatives in Asia.

Abstract

Stablecoins and central bank digital currencies are on the horizon in Asia, and in some cases have already arrived. This paper provides new analysis and a critique of the use case for both forms of digital currency. It provides time-varying estimates of devaluation risk for the leading stablecoin, Tether, using data from the futures market. It describes the formidable obstacles to widespread use of central bank digital currencies in cross-border transactions, the context in which their utility is arguably greatest. The bottom line is that significant uncertainties continue to dog the region's digital currency initiatives.