The Financial Stability Board (FSB) sent a warning signal over the ambitious global stablecoins such as Libra, claiming they could disrupt the current monetary system of the G20’s nation-state and border international community.
The G20’s financial watchdog went ahead to publish regulatory recommendations aimed at limiting the intended trans-national global coins from achieving the ultimate goal of establishing a single digital global currency.
According to FSB’s report, the stablecoin projects should neither use “regulatory arbitrage” nor be part of the financial structures of national economies. Their inclusion poses potential financial risks to world economies.
The report went ahead to warn the dominance of the so-called global stablecoins (GSC) could lead to systemic complication thereby underpinning the government capacity in dictating monetary, economic and investment policies within its territory.
According to the Randal Quarles, CEO FBS, the decentralized nature of GSC including Libra will automatically put the monetary system out of the government control. The possible redemption arrangements to stabilize digital monetary system would lead to market credit and liquidity risks.
Besides, the CEO also noted the technology and security concerns involved in recording transactions and exchange of coins cannot guarantee users safety against cybersecurity risks. There are many instances where hackers made away with crypto with millions and the so-called Stable-coins count help the trace or catchup the culprits. Thus, living GSC to take control is a risky move.
The FSB urged that the influence caused by GSC to their financial governance is only limited to their relatively small adoption. The board members emphasized that comprehensive implementation regulatory frameworks should be established prior to the stable coins gain significant traction.
Collaboration between GSC and national supervisory authorities in identifying potential gaps within their domestic jurisdiction. Also, there should be cooperation to reduce instances of cross-border and cross-sectoral regulatory arbitrage.
Despite the emphasis being on the numerous warning over overs risks associated with GSC, the global stablecoins highlighted the advantages that come alongside adopting stable coins. Some of the benefits included efficient financial payment services and better economic inclusion internationally. Thus, upon compliance with the said recommendation and operating within regulatory from GSC have got potential to transform financial industry at minimized risks.
