The scope of the current study by the Federal Reserve into CBDC has reportedly been widened to cover stablecoins, and whether there could be an effective regulatory framework established for them. 

Specifically, Yale Professor Gary B. Gorton and Jeffery Zhang of the Board of Governors of the Federal Reserve System have jointly authored a 49-page paper, dubbed “Taming Wildcat Stablecoins.”

The paper by Gorton and Zhang reportedly suggested that “privately produced monies”, nominally stablecoins, cannot become a medium of exchange with sufficient effectiveness, since they do not always receive acceptance at par and “are subject to runs”. 

Following a thorough journey into the history of private money, starting with the Free Banking Era in the United States, a phase that runs from 1837 to 1864, the researchers reportedly claimed that there are two options available for policymakers, regarding stablecoin regulations. 

The first will be granting stablecoins the same status as public money, second will be rolling out a CBDC, which involves taxing private stablecoins out of existence.

If choosing to go with the first option, the authority could reportedly make it mandatory for the issuance of stablecoins to be completed via FDIC-insured banks, or specify that every stablecoin be fully collateralized by Treasuries at the Federal Reserve.

The paper reportedly surfaced on Twitter on July 18th, where Avanti founder Caitlin Long made a noteworthy connection between the publication date and an upcoming stablecoin working group led by Treasury Secretary Janet Yellen.

Starting July 19, Yellen will reportedly assemble the President’s Working Group on Financial Markets to talk about stablecoins. The group consists of numerous regulators to run assessments on the possible pros and cons of stablecoins.