G20 Financial Stability Board warns of risks by stablecoin
The G20 asked global regulators to be attentive not only to the opportunities but also to the risks associated with 'stable corners' such as Libra.
The Financial Stability Board (FSB), an international economic grouping affiliated to the G20, published on 14 April in a 67-page report 10 key recommendations to address the regulatory, supervisory and control challenges posed by stablecoins.
The FSB argued that Stablecoins can pose risks to financial stability and must be adequately regulated. Regulators have been stimulated by the introduction of Facebook's Stablecoin, which would create an independent 'stablecoin' based on a basket of currencies. Although the social media giant had previously insisted that Libra is not a stable currency, Facebook CEO Mark Zuckerberg conceded to US lawmakers that it could be considered as such at a hearing in October.
The organization believes that most of the technologies and mechanisms used in stable coins have not been tested to scale. As such, it believes that these assets may have hidden vulnerabilities that will only become apparent as they prepare for use by the general public.
According to the FSB, there are still gaps in the cross-border dimension of stable corners due to the disparity of regulations between different countries. The G20 FSB stated in the press release:
Stablecoins' are crypto-actives designed for the payment or storage of value by linking their own value to a single currency or basket of currencies. While this method can effectively improve the efficiency and stability of financial markets, it can also do the opposite and the G20 urged regulators around the world to increase risk oversight. The recommendations of the Financial Stability Board (FSB) call for regulation, supervision and oversight proportionate to risks,'
The FSB report notes that existing financial rules generally apply to stable coins, as do similar statements by US regulators. Nevertheless, the council maintains that the rules should be the same for all companies that pose a financial risk, regardless of the technology used.
Some of the recommendations relate to the creation of a flexible cross-border framework so that stable coins cannot play on the differences between jurisdictions.
Written By Laetitia, Project Manager