Conference Agenda

Session
BIS: Digital Assets and The Future of Finance
Time:
Friday, 18/Aug/2023:
8:30am - 10:00am

Session Chair: Andreas Schrimpf, Bank for International Settlements
Location: Auditorium (floor 1)


Presentations
ID: 412

Can Stablecoins be Stable?

Adrien d'Avernas1, Vincent Maurin1, Quentin Vandeweyer2

1Stockholm School of Economics, Sweden; 2Chicago Booth

Discussant: Alexandros Vardoulakis (Federal Reserve Board)

This paper provides a general framework for analyzing the stability of stablecoins, cryptocurrencies pegged to a traditional currency. We study the problem of a monopolist platform that can earn seigniorage revenues from issuing stablecoins. We characterize stablecoin issuance-redemption and pegging dynamics under various degrees of commitment to policies. Even under full commitment to issuance, the stablecoin peg is vulnerable to large demand shocks. Backing stablecoins with collateral helps to stabilize the platform but does not provide commitment. Decentralization of issuance, combined with collateral, can act as a substitute for commitment.

EFA2023_412_BIS_1_Can Stablecoins be Stable.pdf


ID: 1963

Stablecoin Runs

Yiming Ma1, Yao Zeng2, Anthony Lee Zhang3

1Columbia Business School, United States of America; 2Wharton; 3Chicago Booth

Discussant: Ye Li (University of Washington)

We estimate the run risk of fiat-backed stablecoins. A run on stablecoins would lead to the fire sales of US dollar assets like bank deposits, Treasuries, commercial papers, and corporate bonds. Our model shows that the possibility of panic runs persists even though general investors only trade stablecoins in competitive secondary markets with flexible prices. This is because stablecoins engage in liquidity transformation and the fixed price at which a set of authorized participants (APs) redeem stablecoins for cash from the issuer reinstates run incentives among secondary-market investors. A more concentrated AP sector acts as a firewall between secondary and primary markets to mitigate runs but gives rise to larger secondary market price dislocations, implying a tradeoff between run risk and price stability. We collect a novel dataset on stablecoin redemptions, trading, and reserve assets to calibrate our model. For the largest stablecoin, Tether (USDT), our estimates imply a run probability of 17.04% in September 2021 which decreases to 3.45% in March 2022 as reserve assets became more liquid.

EFA2023_1963_BIS_2_Stablecoin Runs.pdf


ID: 609

Keeping Up in the Digital Era: How Mobile Technology Is Reshaping the Banking Sector

Charlotte Haendler

Southern Methodist University, United States of America

Discussant: Sebastian Doerr (Bank for International Settlements)

I show that the growing trend in financial services digitalization has introduced a novel dimension along which commercial banks compete. Based on the analysis of newly hand-collected data on the launch date of banks' smartphone apps, I show that small community banks (SCBs) have been slow to provide mobile banking services to their customers. As a consequence, when the local mobile infrastructure improves--a positive shock to smartphone apps' usage and value--they lose deposits to larger, better-digitalized banks. Further, this dynamic negatively affects their small business lending, for these institutions have historically relied on information and liquidity synergies with deposits to maintain their competitive advantage in such markets. Larger banks and FinTech firms prove to be imperfect substitutes in this setting, and the local economy benefits less from digitalization in areas where SCBs had an important presence before its advent.

EFA2023_609_BIS_3_Keeping Up in the Digital Era.pdf