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Academics Note Financial Inclusion Possibilities of Stablecoins, But Also Warn of Risks

Scholars debate stablecoins as their use increases.



Timothy Massad, research fellow at the Kennedy School of Government at Harvard University, via Flickr

WASHINGTON, April 19, 2022 — Academics at an event hosted by the Federalist Society argued Thursday that stablecoins, digital currency that bases their value on other currencies, can improve financial inclusion.

At the law organization’s Thursday event, Paul Jossey, a lawyer and adjunct fellow for cryptocurrencies at the Competitive Enterprise Institute, argued the benefit of stablecoins as a way to increase financial inclusion in the country, while Timothy Massad, a research fellow at the Kennedy School of Government at Harvard University and adjunct professor of law at Georgetown Law School, asserted that it is only one way of many to ensure a more equitable monetary system in America.

“Stablecoins are digital assets pegged to the value of a stable monetary value, usually the US dollar. If you go anywhere in the world right now where there is a crisis, extreme poverty, people in desperate situations, you will find people trying to acquire stablecoin,” said Jossey. Because stablecoins have proven to be in demand around the globe, Jossey said expects them to take off in America if given the proper attention.

Massad, in some ways, said he agrees with Jossey’s point. “People who live paycheck to paycheck, even if they have a paycheck, often face delays in getting their payments cashed – it can take 3-5 days.

“If they need to pay their bills right away, they can’t do that, so what do they do? They go to a check cashing service where they have to pay maybe 10 percent of the value of their check, but they get the cash with which they can pay their bills right away. Speeding up payments would be beneficial to them. Having them be able to have digital accounts that aren’t as costly as bank accounts might be a good thing, too. Stablecoins are potentially a way to address that, but there are other ways to address it too,” he said.

But Massad also noted the risks of using stablecoins as a way to address these problems.

“Blockchains can have issues,” he said, referring to the digital ledger on which all digital transactions are recorded. “They can have software bugs, they can be hacked, they can simply be not big enough, not resilient enough, to handle the trading. They’re not regulated in any way, so there’s a payment system risk there too,” he said.

Jossey agrees that there should be more regulation, but not heavy handed. “I think that this new iteration coming from Web3 where it’s individually centered and the power and the data stay at the individual level and can remain there so…content creators are not giving most of their take to these massive platforms like Youtube. All of this will be fueled by stablecoins.

“In a perfect world the government would be encouraging this [stablecoins] and not stifle innovation. I do agree with Tim that there should be some guardrails as far as disclosure and redemption policies, but other than that we should just let the people who are creating this stuff do their work,” Jossey added.

Reporter Theadora Soter studied English at the University of Utah. She has been an Opinion Writer at the university’s Daily Utah Chronicle, and has a passion for storytelling. She has also worked as an intern at The Salt Lake Tribune.

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Payment Stablecoins Should be Regulated for Safety, FDIC Chair Says

“The main benefit…of a payment stablecoin is the ability to offer cost-effective, real-time, around-the-clock retail and business payments.’



Screenshot of Martin Gruenberg, acting chairman of the Federal Deposit Insurance Corporation.

WASHINGTON, October 20, 2022 – Martin Gruenberg, acting chairman of the Federal Deposit Insurance Corporation, on Thursday argued payment stablecoins would be safer if subjected to “prudential” – or risk-minimizing – regulation. 

Speaking at a web event hosted by the Brookings Institution, Gruenberg outlined risks associated with cryptocurrencies – including market volatility and fraudulent behavior – and floated the introduction of “payment stablecoins,” which he said could be used for retail transactions.

“There has been considerable discussion and public debate regarding the benefits and risks associated with the development of a payment stablecoin for both domestic and international, cross-border payment purposes that is subject to prudential regulation,” said Gruenberg. “The main benefit given for the development of a payment stablecoin is the ability to offer cost-effective, real-time, around-the-clock retail and business payments.”

The value of stablecoins, a type of cryptocurrency designed to reduce price volatility, is tied to a reserve asset, such as the U.S. dollar. Stablecoins were developed to trade between other cryptocurrencies without “the need for converting into and out of fiat currencies,” Gruenberg said. Panelists at previous events argued for stablecoins potential ability to increase financial inclusion in the country, and its importance in the technology race with China

Part of the criteria for such stablecoins, Gruenberg further said, is that they be backed dollar-for-dollar by high-quality, short-dated United States treasury assets, and for the transactions to be conducted on well-regulated permissioned ledger systems.

A permissioned ledger system allows moderators to regulate who can participate in the network.  In addition, participants are not anonymous, which, according to Gruenberg, is important for the safety of payment stablecoins. “The ability to know all the parties…that are engaging in payment stablecoin activities is critical to ensuring compliance with anti-money laundering and countering-the-financing-of-terrorism regulations and deterring sanction evasion,” he argued.

Because of the novel and complex nature of cryptocurrency, Gruenberg said, the FDIC should approach its regulation with thought and care. The FDIC issued a letter to its supervised banks that requested information on their cryptocurrency activities earlier this year, and Gruenberg said collaboration with banks would continue.

“There are important risks and policy concerns that will need to be taken into consideration before a payment stablecoin system is developed,” he said.

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Treasury to Release Three Reports on Digital Currencies in ‘Coming Weeks’

The reports will discuss digital asset implications on national security, financial inclusion, privacy and citizens.



Photo of Treasury Secretary Janet Yellen

WASHINGTON, August 29, 2022 – The Treasury Department announced last week it will be releasing a series of reports about the security and state of digital currencies in the U.S. “in the coming weeks.”

The department said three reports will be released and will discuss the impact of digital assets on issues such as national security, financial inclusion, privacy and on consumers, businesses, and investors.

The department’s August 24 announcement will fulfill a commitment required by a March executive order from the Biden administration that mandates within 180 days the department produce a report about the future of money and payments systems, including adoption of digital assets, and the implications of technology and those assets on the country’s financial system.

The Biden administration has put “a high level of urgency towards research and development efforts into a potential U.S. central bank digital currency,” Julia Smearman, director of international financial markets at the Treasury Department, said Wednesday.

At an event earlier this year, experts pondered whether the U.S. was falling behind other nations, such as China, when it comes to developing their own digital currency.

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IBM Exec Touts Blockchain Technology as Economy Accelerator

Blockchain will be commonplace in the economy ‘within the decade,’ the IBM executive said.



Screenshot of Jerry Cuomo, IBM vice president of blockchain technologies

WASHINGTON, August 23 – Blockchain technology will speed up the economy in the coming decade in part by making the process of verifying information – such as user identity – more safe, streamlined and efficient, said IBM’s vice president of blockchain technologies at a Tech Forward event on Tuesday.

Jerry Cuomo described blockchain as an “odd duck” type of database with a few defining features, explaining that each blockchain has several administrators, that each transaction must be vetted by the administrators before being recorded to the digital “ledger,” and that transactions, once recorded to the ledger, are essentially impossible to change or delete. Cuomo also explained that each data point – or “block” – in each blockchain is heavily encrypted, which creates high levels of security and user trust.

Although blockchain is most widely associated with the transactions of cryptocurrencies like Bitcoin, Cuomo said it can used for a wide variety of purposes – including identity verification, food safety and intra–supply chain communication. For example, Cuomo suggested that instead of making hundreds of accounts on various websites, a user may soon be able to have a single, blockchain-based identity that would be accessible whenever verification is necessary.

Cuomo said he believes food safety, for example, can be improved by using blockchain technology to document salient information about food conditions during transport. IBM Food Trust is a blockchain-based service that the company says allows participants to track a food product throughout a given supply chain and to ensure that it is safe, fresh, and sustainably sourced.

The company said it offers a wide variety of blockchain services. IBM’s supply chain service, for instance, promises “data integrity and faster reconciliation,” features that are made possible by the immutability of each blockchain record once it is entered into the ledger.

As for the timetable on blockchain technologies becoming commonplace in the economy? “I think its within the decade,” said Cuomo. “This is not an ‘if,’ this is a ‘when.’”

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