Why regulators should treat stablecoins like banks

TWELVE YEARS after bitcoin was born, governments are still struggling to cope with cryptocurrencies. Britain has banned Binance, a crypto exchange and the European Union’s regulators want transactions to be more traceable. On August 3rd Gary Gensler, the head of America’s Securities and Exchange Commission, said cryptocurrency markets were “rife with fraud, scams and abuse” and called on Congress to give his agency new regulatory powers. The price of bitcoin, the biggest cryptocurrency, gyrates with regulators’ every word.

Governments have an obligation to fight the deception, tax evasion and money laundering that plagues the crypto world. Police seizures of bitcoin suggest that they are becoming more zealous. The harder issue they must grapple with is whether cryptocurrencies threaten the financial system. Were bitcoin to collapse, our crypto “stress test” suggests that its holders would lose hundreds of billions of dollars but that the fallout would be manageable. Yet there is another danger posed by “stablecoins”, a special type of cryptocurrency that pegs its value to conventional money.