If you’ve been reading coverage of stablecoins during this ‘stablecoin summer’, you’ll notice it has a tendency to fall into one of two extremes. Stablecoins are either going to dominate all payments really soon. Or, in the words of the Bank for International Settlements (BIS), they are “unsound money”. The reality is far more nuanced.
The BIS’s unsound money conclusion was disappointing. Not because it conflicted with some deeply held world view, but because it fell short of the balanced, comprehensive assessment the BIS typically provides. Yes, stablecoins absolutely have risks. But let’s explore whether they can be mitigated, and if so how.
This more balanced approach is evident in the IMF’s latest Finance and Development magazine issue on “Stablecoins and the future of finance”, which will be published on Wednesday. The contributors are academics, central bankers and IMF authors, with business voices notably absent. Still, a couple of articles explore how stablecoin risks might be mitigated.
A piece entitled “The stablecoin balancing act” explores how “fighting financial crime doesn’t have to come at the cost of privacy.” It suggests combining verified credentials and zero knowledge proofs – where someone can prove they have gone through KYC without revealing their identity – to enable transactions in a privacy by design approach.
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Image Copyright: IMF