#CPMI

In all of the reports on all of stablecoin’s risks that so frighten central bankers and global finance ministers, none is as terrifying as whether the assets backing hundreds of billions of dollar-equivalent transactions are to be had when needed.  And needed they will be – see not just all the ministerials on high, but also Gillian Tett’s latest, compelling FT column.  Without a meaningful reserve-currency reference, stablecoins are the equivalent of monopoly money without even the teeny little plastic hotels providing an illusion of wealth.  Making stablecoins matter as real money requires meaningful reserves but meaningful reserves mean that stablecoin’s gung-ho promoters won’t get anywhere near as rich.  The business model changes for the way-better, but the construct of stablecoins may be so altered as to make this looming systemic phenomenon only a passing fancy.

The set of difficult choices needed to realize stablecoin’s promise to anyone but profiteers is detailed in our latest report on critical policy issues.  In it, we analyze a set of systemic-risk principles recently proposed by the BIS’s Committee on Payment and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO).  As is usually the case with global-regulatory pronouncements, this proposal defines wide parameters for jurisdiction action, stating most clearly what’s wanted, not what will happen if one were actually to get it.

The CPMI/IOSCO paper is even more hesitant than usual because reserve assets aren’t stablecoin’s only tricky bit.  For example, the paper describes a governance conundrum of formidable proportions …