Central bankers for a number of the world’s leading economies have told regulators to close legislative gaps in order to prevent digital currencies from posing a systemic threat to financial markets. The Financial Stability Board (FSB), the supervisory body for the G20 group of nations, made 10 recommendations for a coordinated approach to regulating stablecoins, which are gathering momentum worldwide, and stressed that countries needed to work together to ensure that there were no discrepancies that could be exploited.
National Regulators Must Guard Against Risk
In a report to the G20, the FSB noted both the potential to boost efficiency in the provision of financial services that sovereign stablecoins could bring as well as their potential risks to financial stability, with the discussions going on under the cloud of Facebook’s private stablecoin venture, Libra.
The board added that any such assets should face the same rules as other businesses that present the same risks to legacy financial systems regardless of the technology used, and that standards and rules for digital currencies and related payment activities should apply in part to stablecoins, although national regulators may need to make changes to safeguard against all risk:
Authorities should be prepared to clarify or supplement financial regulations that do not adequately capture the risks of global stablecoin functions and activities and to develop and implement regulations to address uncaptured risks as needed.
Libra Continues to Cast a Shadow
The call for action on stablecoins was accelerated following the announcement of Facebook’s intentions to launch Libra last year, which acted as a wakeup call to the G20 and regulators alike as they realized that a private entity was on course to launch a worldwide currency.
As a result, the group asked the FSB to examine the challenges that could arise from the entry of digital currencies into the financial system, with the potential for a digital Euro or individual digital currencies for various nations.
Outside of Europe, China has marched ahead with its plans to launch a digital yuan, with test apps launched earlier this week, showing just how far ahead of the game they are than either Europe or the US.