Stablecoins and their regulation: a Hayekian approach

Abstract

This article critically investigates stablecoins and the emerging global regulatory landscape targeting them. Frederich Hayek’s currency competition model is utilized as the main analytical framework for this investigation. The article aims to answer two fundamental questions: Are stablecoins Hayekian currencies? If so, how will the emerging regulations affect the currency competition? The article finds that stablecoins satisfy some key conditions of the Hayekian model, such as stability, transparency, and a robust technological framework. Nevertheless, unlike Hayekian currencies, stablecoins are not anti-inflationary and benefit from somewhat limited competitive discipline. The article also finds that some aspects of the emerging regulations will further limit the operation of stablecoins as Hayekian currencies. This is particularly the case for stricter prudential standards imposed on stablecoins compared with other mediums of exchange and the ban on interest. However, if stablecoins comply with the regulatory standards without compromising innovation, they might emerge as superior-quality Hayekian currencies and impose competitive pressure on other private and public sources of money to follow equally robust prudential standards.