Thread by @GeorgeSelgin

Thread: The right way to go about deciding how to regulate stablecoins.

Having explained why loose (and misinformed) comparisons with 19th century banknotes are the wrong way to proceed, I thought I'd offer some positive suggestions.

(1) Acknowledge the fact that there are many types of stablecoins, with different underlying technologies and principle uses. It is highly unlikely that any broad-brush regulatory treatment will be appropriate to all.

(2) Stop calling them "money." They are niche exchange media, not generally accepted exchange media. And that is itself not a bad thing so long as national monies are also available.

(3) It follows from (2) that occasional deviations of stablecoins' value from that of underlying standard monies' value is also not bad ipso facto. It's like a pegged fiat currency where the peg isn't perfect. If there's no contractual commitment to absolute stability, so what?

(4) Distinguish between AML KYC, consumer protection, and other "microeconomic" goals of regulation and macroeconomic goals,and make clear which if any a suggested regulation is supposed to achieve.

(5) For macro. (stability) goals, the relative questions are whether regulations are needed to keep a stablecoin from either interfering with the ordinary conduct of monetary policy or to keep it from becoming a source of systemic risk.

(6) In either of these last cases, arguments for regulation should rest of specific arguments about potential macroeconomic risks--arguments that take account of specific stablecoin operating mechanisms

(7) If, for example, the claim is that regulation is keep a run on a stablecoin from posing systemic risks, the argument should show (a) how the specific operating mechanism is in fact vulnerable to runs and (b) how the runs can adversely affect other intermediaries.

(8) A demonstration of the sort described in (7) only works for one set of similar stablecoins. It can't be used to justify like regulation of very different stablecoins.

(9) Conversely, efforts should be made to discover which sorts of stablecoins pose the lowest risks, since one approach to regulation consists of encouraging the use of such stablecoins. Efficient regulation isn't just a matter of prohibiting dangerous options.

(10) I suspect that some stablecoin designs either are or can be made to be macroeconomically _safer_ than conventional, bank-supplied exchange media. For that reason, trying to make stablecoin issuers function like regulated banks should not be a priority.

(11) Item (10) means that any choice among several possible regulatory arrangements should favor those that will permit ongoing stablecoin market innovation over those that might stifle it, other things equal.

(End.)

@threadreaderapp, kindly unroll.