Will stablecoins replace CBDCs? Or will stablecoins be incorporated into the framework of CBDCs?

New York Federal Reserve Bank research advisor Antoine Martin mentioned at the Warwick Business School's Gilmour Center Policy Forum in London that central banks could use stablecoins as an alternative to developing their own central bank digital currency (CBDC). With the stablecoin proposal in the U.S. being delayed, could the Regulated Ledger Network (RLN) introduced in a recent CBDC testing project by the New York Federal Reserve Bank be another solution to incorporating stablecoins into CBDC?

Using Stablecoins as a Shortcut to Building CBDCs?

Martin mentioned in a forum event:

Central banks could potentially support stablecoins by allowing them to be backed one-to-one by balances in central bank accounts, rather than issuing a central bank digital currency (CBDC). Adjusting our regulatory and legislative environment to support stablecoins is already a daunting task, but it may be easier than managing a CBDC for retail purposes, especially considering that the private sector has been providing traditional retail digital payment services for many years.

Martin also compared China's payment platforms Alipay and WeChat Pay, where platforms need to hold an equivalent amount of Chinese yuan in the People's Bank of China to support user transfer services, which could also be applied to stablecoins.

Regulated Liability Network (RLN)

The New York Innovation Center (NYIC) under the Federal Reserve Bank of New York, in collaboration with members of the U.S. banking and payment industry, officially launched a Proof of Concept (PoC) project on 11/15 to explore the feasibility of an interactive digital currency platform based on a Regulated Liability Network (RLN) with regulatory oversight.

RLN regulated liability networks are a concept within Financial Market Infrastructure (FMI) aimed at facilitating digital asset transactions and connecting deposits held by regulated financial institutions using distributed ledger technology.

The whitepaper on RLN lists 5 forms of digital currencies, including stablecoins, but also mentions the regulatory uncertainties surrounding stablecoins.

This theoretical FMI provides a multi-asset, always-on, programmable infrastructure, currently comprising tokenized central bank and commercial bank currencies in U.S. dollars and regulated non-bank issuer liabilities like e-money.

The technology aims to bring blockchain innovation into the real economy while maintaining many protections provided by banking regulation. This helps reduce payment costs and ensures consumers can use funds instantly. If stablecoins can have a legally compliant foundation, they may be integrated into RLN, becoming another type of electronic payment provider entering the real economy under the CBDC framework, offering people another payment option.

Everything Awaits the Stablecoin Legislation

The U.S. House Financial Services Committee's draft stablecoin legislation, originally scheduled for release in early September, has been postponed with no specific timeline for discussion yet. Issues including the role of national regulatory agencies, the possibility of a future U.S. digital dollar, and the handling of customer funds held by crypto platforms have not reached a consensus.

Japan, which successfully safeguarded user assets in the recent FTX incident due to proper regulation, passed a stablecoin law back in June. The law is expected to take effect within a year, and the Japanese Financial Services Agency will also establish regulations for managing stablecoin issuers.