G7: Financial Stability at Risk from Global Stablecoins
- Even though G20 leaders previously admitted that crypto assets are not a risk to global financial stability, the new report says stablecoins come with their own challenges and risks.
- The report also says that even if stablecoin projects can address all the legal, regulatory and oversight challenges and risks, they might still not get approved.
Illustration from Freepik
The Financial Stability Board (FSB) has concluded that “global stablecoins” could pose a risk to the global financial system, the BBC reported on 13 October.
According to the article, the G7 working group has drafted a report which outlines the potential benefits and challenges that a global stablecoin could bring. In the letter, addressed to G20 finance ministers and central bank governors, the FSB’s chair Randal Quarles said that even if companies address the regulatory concerns, that may not be enough for them to get approval, stating:
“The G7 believe that no stablecoin project should begin operation until the legal, regulatory and oversight challenges and risks are adequately addressed. […] Addressing such risks is not necessarily a guarantee of regulatory approval for a stablecoin arrangement.”
The letter acknowledges that G20 leaders previously admitted that crypto assets are not a risk to the global financial stability, but it does stress that “global stablecoins” come with their own “host of challenges” for regulators.
The list of issues included tax evasion, data privacy and protection, AML/KYC compliance, market integrity and fair competition.
Even though Facebook’s Libra was not mentioned in the letter, this new report could bring further trouble to the project.
Libra has seen an ever-increasing pressure from regulators since its announcement in June, and now according to the letter, it might not get approved even if it meets all regulatory requirements.
Because of this pressure Libra lost some of its partners. PayPal pulled out of the Libra Association on 4 October, while Visa, Mastercard, eBay, Stripe, and Mercado Pago followed a week after.
Mark Zuckerberg, Facebook’s founder and CEO, will attend a congressional hearing before the U.S. House of Representatives Financial Services Committee later this month, to try and defend Facebook’s Libra project.
Congresswoman Maxine Waters, a noted critic of the project, has drafted a bill called “Keep Big Tech Out of Finance Act”, which is designed to ban big corporations from getting licensed as financial institutions in the U.S..
- South Korea’s FSC clarified that crypto assets will be treated as security tokens if they have the same characteristics as securities as laid out in the Capital Markets Act.
- The FSC noted that stablecoins and crypto assets that do not have an issuer will likely not fall under the definition of securities.
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- Users will be able to earn multiple forms of yield by using CLAWS as the base asset.
- The newly launched yield dollar can be collateralized with bBadger and wBTC/ETH SLP and is set to expire at $1.
- Online metaverse platform IMVU has launched VCOIN, a blockchain-based digital currency.
- The tokens can be bought from and sold to IMVU at a fixed rate of 250 tokens for $1.