A Global Stablecoin: Revolutionary Reserve Asset or Reinventing the Wheel?

Abstract

This article examines the geopolitics, legal nuances and monetary policy which inform Carney's proposal. Part I sets out the application of block-chain technology in the context of payment systems, and discusses the geopolitics of Libra and the shift in focus to Central Bank Digital Currencies ('CBDCs'). It suggests that state-backed cryptocurrencies are more likely than their private sector counterparts to fit the role of true digital currencies, at least on a domestic level. Part II explains the legal distinctions between the cryptocurrency models proposed by Facebook and others, and CBDCs. The former fulfils the main functions of money by granting a claim to the holder, whereas the latter does so as an 'object' of monetary policy. A Global Stablecoin ('GSC') such as the SHC does not necessarily fall into either camp, but its success as a global reserve currency may hinge upon the fine details of its legal construction. In Part III, one conception of the SHC, based on the 'claims model' is set out. Whilst the use of block-chain technology is undoubtedly novel, there are significant similarities between this version of the SHC and previously rejected reforms to the 'Special Drawing Rights' (SDR) allocated by the International Monetary Fund ('IMF'). It is argued that the extent of the similarities indicates that the claims model is likely to face the same hurdles which stymied the campaign to develop the SDRs into a global reserve currency. This begs the question, however, of why Carney would propose the SHC if the odds in monetary policy were already so firmly stacked against it. Part IV considers the 'objects model' as applied to a SHC. It tentatively concludes that the features of the objects model which distinguish it from the claims model greatly improve its prospects of success. Specifically, the generation of network effect value, as a substitute for the convertibility value of SDRs, may be the decisive contribution of block-chain technology to a truly international currency. The article concludes that a claims-based SHC would, to a great extent, be an attempt to reinvent SDRs in a digital age, and that the advantages of block-chain technology will be insufficient to surmount well-established US monetary policy. The objects model, whilst more ambitious in some respects, constitutes a radically novel proposal which may, for that reason amongst others, gain global traction.