G20 regulator warns countries to alleviate risks of Libra-like stablecoins

The Financial Stability Board (FSB) has alerted national regulators to gauge standards and tackle any possible disturbance caused by global stablecoins like Libra. On Tuesday, 14th April, the FSB – a G20 body suggested methods to improvise the global financial system – outlined many activities linked with stablecoins that were already enclosed by regulatory frameworks, but there are other risks that national regulators might be left unprepared.

National regulators need to be prepared for the unique risks posed by global stablecoins, the Financial Stability Board says.

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The organization emphasized that the technology and methods used in stablecoins were mostly untested, which means there are chances of digital assets having hidden vulnerabilities that emerge only when they will have widespread use.

“If users relied upon a stablecoin to form regular payments, significant operational disruptions could quickly affect real economic activity,” the FSB reported. “Large-scale flows of funds into or out of the GSC [global stablecoin] could test the power of the supporting infrastructure to handle high transaction volumes and therefore the financing conditions of the wider financial system.”

According to FSB, the national regulators should analyze the fast pace of innovation in the digital asset space to check and forecast any weaknesses or regulatory holes before they take effect. It was instructed to all or any member countries to “clarify regulatory powers and address potential gaps in their domestic frameworks to adequately address risks posed by GSCs.” Countries should coherently collaborate with each other and regulate the method of using stablecoins. It explained that a collective approach would emphasize consistency and minimize “opportunities for cross-sectoral and cross-border regulatory arbitrage.”

Even though FSB doesn’t mention Libra by name, it does talk about considerations that have been raised since Facebook revealed the digital currency project last year. The watchdog’s call for all-inclusive and unambiguous stablecoin guidelines depicts other doubts regarding libra.

The stablecoin report is currently under discussion, with the FSB checking out additional feedback from 68 members, which consists of enforcement agencies from the U.S, China, and therefore the European Union as well as bodies including the World Bank, International Monetary Fund and Bank for International Settlements. The public consultation period will extend until July 15, and a final report will be accepted by October.