A global stablecoin: Revolutionary reserve asset or reinventing the wheel?

Abstract

Since early 2019, when Facebook announced its intention to design a payment system based on blockchain technology, the global financial regulatory establishment has begun to take seriously the arguments for disintermediated payment systems. This paper examines the geopolitics, legal concepts and monetary policy that have informed the emergence of ‘global stablecoins’ such as Facebook’s Libra project, central bank digital currencies and the single hegemonic currency (SHC) recently proposed by Mark Carney of the Bank of England. It first analyses private and state-backed cryptocurrencies, and suggests that state-backed cryptocurrencies are more likely to fit the role of true digital currencies. Focusing on the distinctions between central bank digital currencies on a national level and the proposed SHC as a new global reserve asset, the paper sets out the legal structure of the SHC based on the ‘claims’ model, but infers from its similarities to special drawing rights that the full development of such an asset would be opposed by domestic policy interests. Finally, the paper assesses the prospects of the SHC based on the ‘objects’ model. It tentatively concludes that the features of the objects model that 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 special drawing rights, may be the decisive contribution of blockchain technology to a truly global reserve currency.