Stablecoins, Global Digital Currency and the Future of the International Monetary System By Jeremy Allaire, Co-Founder, Chairman and CEO of Circle January 2020 2 Introduction 12 From Single Currency Stablecoins to Global Digital Currencies 3 The Rise of the Internet The Need for Global Stablecoin The Internet and Globalization 14 4 Standards and Governance The Limits of Our Legal, Political 6 A Technology Roadmap and Economic Systems in 15 for Global Stablecoins the Age of the Internet A Policy and Governance Public Blockchains and 17 7 Roadmap for Global Stablecoins Economic Transformation 19 Summary 9 The Rise of Stablecoins 20 About the Author 11 Global Political and Economic Implications of Stablecoins Introduction On September 15, 2008, Lehman Brothers filed for bankruptcy and the largest economic crisis in 79 years cascaded through the global financial system. Six weeks later, on October 31, 2008, the Bitcoin whitepaper was quietly published. Without fanfare, it introduced a groundbreaking new approach to creating a secure digital currency with no centralized authority using a new innovative technology: blockchains. hese twin events in the fall of 2008 they chart a course forward for the global both triggered profound changes in financial system and digital currencies during the global financial system. The Great the next decade. In particular, the paper TRecession ushered in an unprecedented explores the opportunities and challenges extended period of accomodative monetary posed by “stablecoins” — cryptocurrencies policy. The invention of blockchains fueled that are backed by, or pegged to, central a decade of innovation in digital currencies. bank money. It proposes approaches to The impact of these changes have begun to governance and public-private partnerships converge and create an opportunity to forge that can help to unlock the transformative a new international monetary system that potential of stablecoins, including the eventual combines the strengths of global central bank development of a global digital currency. money with the power of public blockchains. Through such an effort, it should become It is timely that many of the world’s economic, possible to establish a new global economic political, financial and technology leaders are system that is more integrated, stable, secure convened this year at the World Economic and open to everyone in the world, ultimately Forum in Davos to explore these ideas. helping to increase wealth creation for all. More than ever, the Forum’s mandate to This paper attempts to catalyze new thinking embrace multi-stakeholder and public- on these issues and lays out key topics private initiatives is needed to collectively global policy makers should consider as improve the global economic system. CIRCLE INTERNET FINANCIAL Stablecoins, Global Digital Currency and the Future of the International Monetary System 2 The Rise of the Internet he opportunities for global economic the community built out an open, global transformation are implicitly woven and decentralized public infrastructure together with the rise of the internet, that everyone could plug into. While that Twhich has brought billions together on a foundation has largely remained intact, billions common open infrastructure to interact, still do not yet have digital access, and in some communicate and conduct commerce. It is parts of the world, the liberal and democratic likely that the new international monetary system we seek to build will implicitly mirror It is likely that the new many fundamental features of the base layers international monetary of the internet. The internet is inherently system we seek to build global and borderless, and is built on a technology architecture that is fundamentally will implicitly mirror many permissionless and decentralized — it fundamental features of the empowers individuals and organizations to base layers of the internet. connect freely, and is not run or controlled principles of open access have been by any single government or corporation. curtailed by varying levels of state control. Twenty five years ago when the first These open networks and standards have commercial phases of the internet were brought us so much of the internet we know unfolding, it was not apparent to most and love today — instant and free access to people what form and shape this new “global nearly all of the world’s knowledge, instant and information superhighway” would take. free and high quality communications with any For many countries and large media and person, anywhere, and an incredible array of communications companies, they assumed new modes of service delivery and commerce it would be business as usual — they would only made possible by the internet. It has also build out their own closed off digital realms. brought global challenges — cyber warfare At the same time, a growing community of and hacking, digital election interference and computer scientists, cryptographers, hackers, propaganda machines, trolling, social isolation, and technology entrepreneurs saw the addiction issues, and increased surveillance power of open protocols, open standards, and loss of privacy, among other issues. free intellectual property and decentralized systems. Through sheer will and creativity, CIRCLE INTERNET FINANCIAL Stablecoins, Global Digital Currency and the Future of the International Monetary System 3 As we explore the future of the international system and the existing internet both suffer monetary system, and investigate the potential from significant failures. A combination of of public blockchain networks, central bank new global policy and governance and new digital currencies and global stablecoins, it is technologies such as public blockchains important to keep in mind the power of the holds the potential to address and overcome internet and how it has already reshaped our failures and weaknesses in both domains. world. At the same time, the existing monetary The Internet and Globalization he rise of the internet strongly with firms and content, they don’t think about correlates to accelerating globalization. where servers are located. Most consumers Fundamentally, the internet itself would never want to go back to a world Tknows no boundaries, and at its core it connects people everywhere equally. Increasing centralization of Individuals and firms connect and transact information and data with large more freely than ever before. Global commerce marketplaces such as Alibaba internet technology companies and Amazon make it possible for product has raised profound questions creators everywhere to reach precisely the and challenges around free right consumer with ease. With a few notable speech, privacy and civil rights. exceptions where censorship remains a where information and communications state prerogative, global information and and commerce were siloed into physical knowledge flows freely, acting as a fluid and geographies and mostly managed by powerful currency for increased globalization. governments or corporate monopolies. Increasingly, more and more people no longer Many of these changes have also brought think with the constraints of borders. The on a backlash, as policy and governance and concept of borders disappears as people societal norms and needs are increasingly browse and search the Web, use email and colliding with the impact of the internet. messaging apps, play games and buy and sell products online. When people search Increasing centralization of information and browse content globally and engage and data with large internet technology CIRCLE INTERNET FINANCIAL Stablecoins, Global Digital Currency and the Future of the International Monetary System 4 companies has raised profound questions At the same time, the global monetary system and challenges around free speech, privacy has become more tightly interconnected and and civil rights. The inherently open and interdependent, increasingly strained and permissionless nature of the internet has with greater risks. In response to the global given rise to increasing amounts of private financial crisis, economic policy makers have data theft, and even disruption of physical maintained the most accomodative monetary infrastructure through cyber attacks. policy on record with central banks continuing to manage growth and inflation targets with more and more limited tools — money If the goal of our common global creation through the open market purchases platforms and infrastructure of government debt, and extremely low and is to advance the social and even negative interest rates. Central bankers economic opportunities of around the world have had to operate within all, we clearly have very far the constraints of national and regional to go and require significant fiscal mandates, in tight calibration with US evolution in our global systems monetary policy, which maintains hegemonic status. The ultimate outcome of these of economic organization. accommodative policies is still yet unknown; Increased globalization, with its inherent indeed, even the most brilliant economists, dislocation of labor and economic coordination asset managers and analysts can only and production, has led to dramatically speculate on how this accommodative policy changing economic conditions, with many can be safely exited without economic shocks. nations and people rising out of poverty, but If the goal of our common global platforms also with sharpening economic inequality in and infrastructure is to advance the even the most developed economies