The role of stablecoins in the economy and evolving regulatory framework

Abstract

This article discusses whether stablecoins can be characterised as "money", their potential role in the economy, and what regulatory framework is available for stabilisation of the value of coins. In doing so, it argues that "stablecoin commercial money", the equivalent of "bank commercial money", could play a significant role in the economy given the appropriate regulatory framework for stabilising the coins. The article presents a conceptual analysis of the terms "money" and "commercial money creation" given the existing form of money and stablecoins and a contextual analysis of the evolving regulatory framework for stablecoins. Issues are examined under the principles of financial law and regulation governing the understanding of the term money and its further conceptualisation in the context of stablecoins. The perspective adopted in the article is interpretive and critically analytical. The article argues that centralised stablecoins anchored in fiat currency and primarily backed by liquid assets are safe, similar to commercial bank money and equally suitable for creating stablecoin commercial money. It highlights the relevance of stablecoin in the economy and its potential to become a widely used payment method, unit of account and store of value. This article aims to further the legal debate on the future of stablecoins. The article is presented in two parts. The first part conceptually and comparatively analyses and defines existing and stablecoin money and the potential role of stablecoin in the economy, including commercial money creation. The second part discusses the evolving regulatory landscape for stabilising the value of coins, and hence the justification for creating stablecoin commercial money as safe money.