IMF Proposes Central Bank Reserves to Solve Stablecoin Profitability Dilemma

Stablecoin issuers can maintain profitability without holding risky assets like stocks, which the IMF says can trigger bank runs. The International Monetary Fund proposes that issuers deposit collateral as reserves at central banks. Central banks would then pay interest to issuers on these reserves. The IMF researchers' report, "Making Stablecoins Stable," warns that market autonomy allows issuers to overinvest in risky assets to generate returns. Forcing issuers to hold only safe assets would reduce efficiency and limit thesupply of stablecoins. The IMF suggests central bank regulation similar to the bank reserve system. The researchers cite the People's Bank of China, which pays 0.35% interest to e-CNY issuers. If interest rates are sufficiently high, 100% collateralization via central bank reserves would be optimal for stablecoins.