5.1.3. A Global Stablecoin Initiative The stablecoin can also be set up as a global initiative. The difference compared to the domestic mod...
5.1.3. A Global Stablecoin Initiative The stablecoin can also be set up as a global initiative. The difference compared to the domestic model is that the RoW sector now plays a key role, with the relative importance of the domestic investment funds sector depending on the weight of the domestic economy in the stablecoin vehicle’s global reserve fund. Some observers have suggested that a global stablecoin whose reserve fund is denominated in a (mix of) foreign currencies could be considered a currency board type arrangement (see Anderson and Papadia, 2020). For the analysis below, adopting this analogy would make no difference in theory but
– following the discussion in Section 3 – since currency boards are not a concept that is included in either the national accounts or the regulatory classifications, we consider the initiative of a global private digital currency/stablecoin a non-MFI deposit scheme. Figure 11 illustrates the case, with Panel A again showing the status quo network of deposits. Likewise, Panel B shows the network of deposits after 20% MFI deposit withdrawals by the HH and NFC sectors. In Panel C, the funds are transferred to the RoW sector where the stablecoin issuing vehicle now resides. Panel D shows the final step under stage 1, where the global stablecoin vehicle moves a share of γ of its globally acquired deposits from the RoW (its home jurisdiction) back to the domestic financial system (the host jurisdiction from the global stablecoin’s perspective), where γ denotes the weight of the domestic currency (foreign currency from the global stablecoin’s perspective) in the stablecoin’s global reserve fund. In the simulations, it is assumed that this weight equals 30.93%, which is the current weight of the EUR in the IMF’s SDR basket. In our network of financial accounts,
The rebalancing process must now take into account that the funds withdrawn from the commercial banks’ deposit accounts are split between two sectors. The share of γ will go to the global stablecoin’s subsidiary in the home country (host country from the global stablecoin’s perspective; placed in the INV sector), whereas the share of 1-γ will permanently move to the RoW. The familiar options, A) to D), for rebalancing are now somewhat changed. Figure 12 shows option A), where the domestic INV sector first redeposits its share of γ with the domestic commercial banks (the MFI sector), leaving the MFIs with a remaining funding gap of 1-γ (Panel A). The RoW sector goes through its own internal rebalancing process,
but at the end of the day, it will hold 1-γ worth of surplus EUR denominated funds, which it will deposit in the home country CB (the Eurosystem). In the case of the Eurosystem, these funds would enter the balance sheet item “EUR denominated deposits by non-euro area residents” (Panel B). The domestic commercial banks then borrow these funds from the central bank in its repo operations to cover their remaining funding gap (Panel C). Cases B-D are similar to those described in Sections 5.1.1 and 5.1.2, with the difference being that if, for example, the MFI sector issues new bonds, these bonds cannot be purchased by the RoW sector, since the latter will not acquire euro area assets in excess of its share of 1-γ. However, given that in a closed financial system the RoW sector ultimately redeposits its share of 1-γ with the domestic central bank, in cases B to D the securities purchases are made jointly by the CB and the INV sectors, with the relative shares determined by the size of γ
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