G20: Regulate Stablecoins Based on Risk Posed
The G20’s Financial Stability Board has called on global regulators to be mindful not only of the opportunities but also of the risks involved with so-called «stablecoins» like Facebook’s Libra.
Stablecoins are crypto-assets designed for payment or store of value by tying its own value to a single or a basket of currencies. Whilst this does indeed have the potential to improve financial market efficiency and stability, it has just as much potential to do the opposite and the G20 urged regulators worldwide to apply greater scrutiny to risk.
«The Financial Stability Board's (FSB’s recommendations call for regulation, supervision and oversight that is proportionate to the risks,» the G20’s FSB said in a statement.
«[We stress the need to] that take into account the evolution of 'global stable coin' arrangements and the risks they may pose over time. They apply the principle of ‘same business – same risks – same rules’, independent of the underlying technology.»
10 Recommendations
The FSB made 10 high-level recommendations in a consultative document that included a need to have all the necessary powers and tools at their disposal for regulatory purposes and regulation based on a global stablecoin's (GSC) function across borders and sectors.
In addition, the FSB also urged regulators to ensure that GSC’s had the proper arrangements in place including a comprehensive governance framework, effective risk management frameworks, robust data systems, contingency plans and sufficient transparent and legal clarity for relevant stakeholders or users.
Libra Threat
The new consultative document emerges amidst concerns about the risks posed by Facebook’s stablecoin Libra. Previous backers like Visa, Mastercard and PayPal have pulled out following skepticism and regulatory pressure from central banks and global watchdogs.
The firm has since said that it could delay the launch of Libra and for now focus on working digital versions of government-backed currencies – governments themselves are also concurrently developing their own digital currencies such as China which tested its crypto yuan in late 2019.
«If widely adopted, a stablecoin could become systemically important in and across one or many jurisdictions, including as a payments infrastructure,» the G20’s FSB added. «Ensuring the appropriate regulatory approach within jurisdictions and internationally will therefore be important.»
