The world’s 7th biggest economies are assessing stablecoins¹ as a potential risk to the global financial system, according to a statement from the Financial Stability Board (FSB).
In a letter to G20 finance ministers and central bank governors on Sunday, the FSB’s chair Randal Quarles said the G7 working group is delivering an assessment report on opportunities and challenges posed by global stablecoins. While the G20 leaders previously admitted crypto assets do not pose a threat to global financial stability, the introduction of global stablecoins could pose “a host of challenges” to the regulatory community, the chair said in the letter.
The regulator presents a range of issues stemming from stablecoins, including data privacy and protection, AML/CFT and KYC compliance, tax evasion, fair competition and market integrity. While the letter does not point to any particular stablecoin as an example, major economies have been voicing their concerns over the anticipated issuance of Facebook’s Libra cryptocurrency.
According to a report from BBC on Monday, the draft report on stablecoin from G7 working group warns that even if Libra’s backers can address such concerns, the project may not get approval from regulators. “Addressing such risks is not necessarily a guarantee of regulatory approval for a stablecoin arrangement,” the G7’s draft report says.
Pressure has been building up for Facebook since major payment companies such as Visa, Mastercard, Paypal and Stripe withdrew from the company’s Libra project.
The FSB will later submit an official issues note on global stablecoins to the October 2019 G20 Finance Ministers and Central Bank Governors meeting this week. “The G7 working group will be handing off work on regulatory issues to the FSB, and we have already begun work in this area,” Quarles said. The assessment came after the G20 Leaders asked the FSB to advise them on additional multilateral responses as needed, given recent developments in stablecoins.
¹Stablecoins are a new type of cryptocurrency that often have their value pegged to another asset. Stablecoins are designed to tackle the inherent volatility seen in cryptocurrency prices. They are normally collateralized, meaning that the total number of stablecoins in circulation is backed by assets held in reserve.