In response to the rising popularity of stablecoins, the G20’s Financial Stability Board (FSB) has issued a consultation report detailing ten high-level initiatives to regulate the tokens.
The report – which could potentially have far-reaching consequences for cryptocurrency enthusiasts around the world – states that stablecoins may undermine global financial stability and should be subject to stringent regulation.
With uncertainty infiltrating the markets in the wake of coronavirus, stablecoins have had some of the highest trading volumes. This is likely due to the fact that coins such as Tether, Paxos and Timvi allow for low-cost, cross-border flows with minimal or zero regulatory friction. Also, in stark contrast to Bitcoin and other cryptos, stablecoins are tied to fiat currency or baskets of assets, making them less prone to wild price swings.
In addition to issuing common recommendations such as strict anti-money laundering and counter-terrorism financing controls, the report warns that the widespread adoption of stablecoins may diminish fiat money’s role and pave the way for an independent financial system outside of government control.
Though the report is most likely triggered by Facebook’s Libra ambition, it doesn’t explicitly name Libra. Yet, the opening of the 67-page report seemingly alludes to the proposed cryptocurrency when referencing ‘a global stablecoin arrangement announced in June 2019’.
The G20’s animosity toward Facebook’s project can be explained by Libra’s enormous potential for widespread adoption. Given that Facebook has a network of around 2.5bn users, Libra if introduced could instantly become systemically important.
The FSB’s report comes on the heels of sharp rebuke from France’s top financial regulator, Autorité des Marchés Financiers (AMF). Last week, the regulator lamented that stablecoins pose ‘systemic risks’ to the EU and called for authorities to ban them if necessary. The European Parliament also published a report identifying stablecoins as a gray area of the cryptocurrency space.
The renewed spotlight on private stablecoins comes at a time when central banks are increasingly looking into issuing their own digital currencies. As we wrote last week, a number of central bank digital currencies (CBDCs) are beginning to gain traction. China is thought to be the leader in this race, with recent reports suggesting that the Agricultural Bank of China (ABC) has now started testing an official mobile app for the country's CBDC.
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