Date Set for Final Global Policy on Stablecoins
Stablecoins might work better as a means of payment and store of value, and possibly contribute to global payment development than crypto assets but they are untested, and still face significant risks.
A committee on payments and markets infrastructure at the Bank of International Settlement (BIS) made the submission in its new report to the G7 Finance Ministers and central bank Governors who had asked for a review from the Working Group on Stablecoins, including its recommendations, by the time of the IMF-World Bank Annual Meetings in October 2019.
The Investigating the impact of global stablecoins report provides an overview of the stablecoin ecosystem and its likely role in improving payment systems and services, the regulatory challenges and the way forward in improving cross-border payments.
They identified stablecoins as having the potential to “contribute to the development of global payment arrangements that are faster, cheaper and more inclusive than present arrangements” but challenges persist regardless of their size.
Some of the legal, regulatory and oversight challenges and risks BIS reportedly cited as posed by this form of cryptocurrencies that are mainly designed to minimize price volatility include legal certainty, sound governance such as the investment rules of the stability mechanism, and money laundering, terrorist financing and other forms of illicit finance. Others are safety, efficiency and integrity of payment systems, cyber security and operational resilience, market integrity, data privacy, protection and portability, consumer/investor protection, and tax compliance.
In addition, the report says “stablecoins that reach global scale” could pose challenges and risks to global monetary policy, financial stability, the international monetary system and fair competition. By such stablecoins, there are suggestions that reference is being made to Facebook’s proposed Libra which has faced some setbacks in its approach to get regulatory approval for its stablecoin launch in 2020.
Prior to the report’s official release, the BBC claims it had a glimpse of its content and found that the world’s biggest economies warns that the Facebook stablecoin project may not get approval from regulators even if Libra’s backers address safety concerns – aligning with the main reason payments giants Mastercard and Visa cited for their withdrawal from the Libra project.
While still inconclusive, the report’s authors say they welcome plans by the Financial Stability Board to assess, in cooperation with standard-setting bodies, what key regulatory issues exist around global stablecoins. The contributions are expected submitted in a consultative report to the G20 Finance Ministers and central bank governors in April 2020, with a final report in July 2020.
Afterwards, the fate of the more than 50 stablecoins that have been created globally since the first in 2014 would be known. Also, whether the use of most of these coins (which have been somewhat confounded within the crypto space until Facebook’s Libra idea surfaced) would be approved for non-crypto platforms would also be determined.
According to Blockchain, most stablecoins are meant to be equal to the US dollar, the world’s leading reserve currency. They can be more complementary than competitive with other cryptocurrencies like Bitcoin or Ether in the short term but stand in stark contrast with these cryptocurrencies which have no inbuilt mechanism to minimize exchange rate volatility. It’s the in-built capability to reduce significant volatility that makes stablecoins important and relevant in the global economy especially as volatility has often been cited as a major reason why many institutions and individuals have remained on the cryptocurrency sidelines to date.
Blockchain states the total market value of all stablecoins more than doubled between 2018 and 2019 from $1.4 billion to $3 billion while its total market value share of all cryptoassets rose from 1.5% as at Sept. 2018 to 2.7% in 2019.