Libra Is Not the Only Concern – G20 Focus on StablecoinsEndy Callahan
The Group of Twenty are greatly concerned and one of the issues they have been recently trying to resolve relates to all stablecoins. Right now Libra is not the only topic they are discussing. Stablecoins raise lots of disagreement since all the risks of increased financial instability come from them. Regulations may change the situation, but the world’s governments should be prepared to take serious decisions.
The FSB run by the G20 have issued stablecoin study. Ten recommendations that the study presented on April 14 will provide effective regulation. Libra that Facebook introduces spurred the regulators. The Group expect that they will soon see a stablecoin that is fully independent. In fact, the idea itself sounded good enough for Libra to relent on it. However, governments keep on being quite vigilant over the program.
The board reported that the financial rules that already exist and are still in use can be applied to stablecoins. Statements from the U.S. regulators support the idea and agree with the principles that the project is based on. At the same time, the FSB admitted that the existing rules should not be any different – this approach includes all sorts of businesses that pose financial risks despite all the technologies they apply.
Stablecoins have a nature that still has plenty of gaps that resulted from patchy regulations between different governments. The project lists a number of recommendations that focus on establishing a flexible cross-border framework. This is necessary to take into account if the world leaders want to prevent possible differences that inevitably exist between each jurisdiction.
More than that, the board decided that common recommendations are also of utmost importance. The documents they issued may help prevent money laundering. Another issue that recommendations mention is counter-terrorism and the ways that can control it.
Do Stablecoins Pose Dangers?
Some are very hostile towards Libra. It is simple to understand and explain. The reason why there is so much negativity is that Libra has all it takes to be instantly adopted. The FSB cannot ignore existing stablecoins. Those include DAI algorithmic coins. On the other hand, the board noted that DAI coins are too small and their systemic risks do not raise any threat.
Stablecoins, however, may eventually carry risks and that’s another issue the paper mentions and describes. The lack of adoption generates additional concerns. What bothers most researchers is that they do not exclude future deviations. Even the smallest changes can bring financial implications and this will affect mainstream settings.
The underlying infrastructure is another topic for discussion. There are concerns and experts believe that outages in payment are more dangerous than thought. Economies that rely on these coins may get into trouble and experience crises.
Finally, capital controls cannot be omitted. This is another problem that has recently appeared. Analysts claim that people regard coins as a good store of value. This is especially natural of housholds going through stressful times and crisis. If so, they would inevitably see destabilization of capital flows. This would affect exchange rates. Intermediation as well as bank funding would also suffer a great deal.
All in all, the FSB declares that one of the major advantages of stablecoins is the freedom in transactions, which, in turn, leads to a devastating consequences to financial stability.
This is happening in Lebanon, where capital controls that the government imposed are very strict and the population cannot access bank savings.
In order to avoid this sort of situation, it’s important to understand what role cryptocurrency plays in citizens’ life. If crypto is regarded as a danger to stability, many countries may soon face serious and negative changes in their lives.
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