Digital Dilemma: G7 Nations Praise Advantages of Crypto, Warn Stablecoins ‘Pose Risk to Global Financial System’
A group of powerful economic leaders is reportedly concerned that crypto stablecoins like Facebook’s Libra could threaten the global financial system.
The revelation stems from a draft report written by the G7, which includes some of the world’s major economies including Canada, France, Germany, Italy, Japan, the United Kingdom and the US.
According to the BBC, the report warns “global stablecoins” must be thoroughly vetted, and “pose a risk to the global financial system” with their ability to scale rapidly.
Stablecoins like Libra are designed to be pegged to traditional assets such as fiat currency and bonds, in order to maintain a steady price.
According to the draft report,
“The G7 believe that no stablecoin project should begin operation until the legal, regulatory and oversight challenges and risks are adequately addressed.”
However, even after addressing concerns adequately, the authors deny that stablecoins would meet regulatory approval.
“Addressing such risks is not necessarily a guarantee of regulatory approval for a stablecoin arrangement.”
The report acknowledges the advantages of cryptocurrency, highlighting their potential to provide a faster and cheaper way to move money and make payments, and serve the 1.7 billion people who are unbanked, underserved and lack access to decent financial services.
The authors also note that the current system is often “slow, expensive and opaque.”
According to a separate report issued on Sunday by the Financial Stability Board, the authors say the greatest threat from cryptocurrencies to the global financial system comes from stablecoins as opposed to more volatile digital assets such as Bitcoin.
“G20 Leaders, in the Osaka Declaration, noted that crypto-assets do not pose a threat to global financial stability at this point, but that they remain vigilant to existing and emerging risks. However, the introduction of ‘global stablecoins’ could pose a host of challenges to the regulatory community, not least because they have the potential to become systemically important, including through the substitution of domestic currencies.
These include challenges for financial stability; consumer and investor protection; data privacy and protection; financial integrity including AML/CFT and know-your-customer compliance; mitigation of tax evasion; fair competition and anti-trust policy; market integrity; sound and efficient governance; cyber security and operational risks; and an appropriate legal basis.
At the same time, G20 Leaders also noted that technological innovations can deliver significant benefits to the financial system and the broader economy. Global stablecoins might offer a vehicle for cross-border payments and remittances for a large number of users.
Stablecoin projects of potentially global reach and magnitude must meet the highest regulatory standards and be subject to prudential supervision and oversight.”