Stablecoins in the cryptoeconomy aren’t going to get a regulatory pass on the world stage, at least if the G20 group’s top financial watchdog has anything to say about the matter.
On Tuesday, March 24th, the G20’s Financial Stability Board (FSB) published a report detailing how international and domestic financial authorities can address the regulatory challenges posed by the advance of global stablecoins.
In that report, the FSB — which coordinates responses perceived vulnerabilities around the global financial system — identified various levels of risks associated with stablecoin projects. To foster a comprehensive international response to these challenges, the FSB additionally put forth 10 specific regulatory recommendations to financial authorities.
Namely, these recommendations included:
- Having tools and powers in place to comprehensively oversee, and enforce laws around, stablecoin operations.
- Applying regulation in proportion to how risky stablecoin projects are.
- Having measures in place to coordinate on stablecoin regulation across both domestic and international jurisdictions.
- Ensuring stablecoin operators have sound governance measures in place.
- Ensuring stablecoin operators have sound risk management measures in place.
- Mandating that stablecoin projects safeguard sensitive data.
- Mandating that stablecoin projects have recovery systems in place.
- Demanding transparency from stablecoin projects, e.g. around how their price stablization mechanisms work.
- Guaranteeing clear legal parameters on stablecoin redemption rights.
- Ensuring new stablecoin projects fulfill all regulatory requirements before they are allowed to launch in a given jurisdiction.
The FSB’s report comes on the heels of the G20 group, a major international forum for 19 of the world’s most economically influential nations plus the European Union (EU), calling for the body to examine the regulatory problems posed by stablecoins last summer.
Zooming out, the FSB’s recommendations would more strictly corral the cryptoeconomy’s stablecoin sector if implemented going forward. This more direct focus would stand in contrast to recent years, wherein stablecoins have been something of an overlooked gray area on regulatory fronts, as has been the wider crypto space.
Yet with the rising success of crypto and stablecoins has come a rising focus — and in some ways, a will to suppress — from states and institutions that could have their powers undermined by permissionless, non-sovereign token projects. It’s certainly a thread to watch for cryptocurrency stakeholders in the years ahead.
What If Central Banks Backed Stablecoins?
Generally speaking, the G20 and its FSB body are worried about stablecoins. But what if the world’s most influential economic institutions, central banks, embraced stablecoins rather than holding them at arm’s length?
It could happen if more proactive and agreeable heads prevail. For example, two IMF officials — Tobias Adrian and Tommaso Mancini-Griffoli — published a report last fall titled “From Stablecoins to Central Bank Digital Currencies” that laid out how stablecoin projects may one day come to directly rely on central bank reserves in order to underpin their value.
Per Adrian and Mancini-Griffoli, such a meld would lead to the creation of what they dubbed as “synthetic central bank digital currencies” (sCBDCs). These new kinds of assets could give commercial banks a run for their money, the IMF officials argued:
“Clearly, [relying on reserves] would enhance the attractiveness of stablecoins as a store of value. It would essentially transform stablecoin providers into narrow banks—institutions that do not lend, but only hold central bank reserves. Competition with commercial banks for customer deposits would grow stronger, raising questions about the social price tag.”
Then again, Adrian and Mancini-Griffoli are only officials within the IMF and don’t speak for the wider organization. They can chart a way forward for the public and private sectors to work together on stablecoins, yet there’s no guarantee their roadmap will be followed, even if collaboration is most beneficial for everyone.