- According to a Tuesday consultation report from G20 nations’ governments – Facebook’s Libra and stablecoins need to be properly regulated.
On April 14, the G20’s Financial Stability Board (FSB) published a comprehensive study on stablecoins, in which it presents 10 recommendations on how these coins can be effectively regulated. Concerns appeared after the introduction of Facebook’s Libra.
While Libra didn’t give any impressions that it may become a basket of currencies-based independent stablecoin, governments from all over the world remain vigilant towards the project.
All Businesses Posing a Financial Risk Should Comply
Along with Stablecoins, any businesses not in compliance post a financial risk, according to the FSB report, regardless of what technology they may be using.
Across countries worldwide: Stablecoins are still regarded as shadily regulated. So the G20’s recommendation is to create a flexible international framework for regulators, in order to streamline previously disparate jurisdictions.
Aside from all this, the FSB also issued recommendations on strict Anti-Money Laundering and Counter-Terrorism Financing policies.
Do Stablecoins Pose a Threat?
Governments are and have been hostile towards Libra because it has the potential to be instantly adopted.
The FSB admitted that other stablecoins such as algorithmic DAIs (DAI) pose a risk too, yet not as much as the Libra. The report details why stablecoins are considered a threat, saying they may not be widely adopted and that the smallest deviations from their peg can have major financial implications.
Worries about their underlying infrastructure appeared too. Outages in payment as a result of weak scalability could be very dangerous in cases where economies may rely on them. Here’s some of what the report reads exactly:
“During periods of stress, households in some countries might come to regard [stablecoins] as a safe store of value over existing fiat currencies and exacerbate destabilizing capital flows. Capital flow volatility can have a destabilizing effect on exchange rates and on domestic bank funding and intermediation.”
Transacting Freely Also a Threat?
The board does conclude that the greatest benefit of stablecoins is their ability to complete transactions freely. But adds that this also represents a big threat to the financial stability, just like in the case of Lebanon: where strict capital controls were imposed at the end of 2019 and citizens don’t have access to their bank savings.
The FSB report is still in public consultation and awaits feedback from 68 member institutions from the US, the EU and China, including the International Monetary Fund, the World Bank and the Bank for International Settlements.
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