Central Banks Recommended to Ban Stablecoins
Central banks push for heavy-duty regulation of centralized, privately-issued global stablecoins and consider prohibiting decentralized ones. Fiat-pegged cryptocurrencies are coming under scrutiny, based on recommendations from the Financial Stability Board.
Key Takeaways
The Financial Stability Board (FSB) outlined ten recommendations to central banks for regulating stablecoins, including outright prohibition.
The FSB is an international entity that provides suggestions on the global financial system. It comprises central banks and finance ministries from major G20 economies.
The recommendations are to be presented before an audience of G20 countries, and reference major stablecoins, including USDT, USDC, TUSD, PAX, and DAI.
Given the market’s heavy reliance on stablecoin, a ban could mean disaster for Bitcoin and the broader cryptocurrency market.
Today, the Financial Stability Board (FSB) released a document addressing the regulatory, supervisory, and oversight challenges raised by global stablecoins. The document, although only consultative in nature, reveals disturbing plans for a globally coordinated move against stablecoins of all varieties.
The FSB makes ten high-level recommendations addressed to central banks and G20 authorities at the jurisdictional level. More specifically, they recommend a unified global approach to the supervision and regulation of the fiat-pegged cryptocurrencies.
Furthermore, the FSB suggests to authorities that, if they can’t control and regulate fully decentralized stablecoins, they should consider banning them.
FSB Raises Regulatory Alarms Against Global Stablecoins
The FSB’s primary focus is on the potential risks that stablecoins could pose to global financial stability, especially those targeted at retail investors. These fiat-pegged cryptocurrencies represent a risk to the financial stability of emerging markets and developing economies, read the document.
Moreover, the FSB argues that global stablecoins could pose significant governance challenges to central banks. The Board seems especially concerned with the macro-financial problems that could arise if, over time, citizens in both advanced and emerging market economies begin favoring stablecoins over existing fiat currencies.
The guidance is aimed at both advanced and emerging economies. Authorities in advanced economies are primarily concerned with stablecoins designed in a decentralized nature, seeing risks in their reliability as a store of value.
Jurisdictions in emerging market economies, meanwhile, express greater concern about foreign-currency-linked stablecoins substituting national currencies, retail deposits, or safe assets. They’re afraid that this could exacerbate bank runs and disintermediate the traditional financial institutions.
According to the FSB, another potential issue is that under distressed macroeconomic conditions—much like the current coronavirus pandemic—global stablecoins could essentially become a sort of a hybrid retail repo market for U.S. Dollars.
If left unchecked, global stablecoins could have a destabilizing effect on capital flows and local fiat exchange rates—especially so in emerging market economies, argued the international regulator.
Source : cryptobriefing
