The Financial Stability Board (FSB) stated that stablecoins have the potential to improve the efficiency of financial service delivery. The agency added that hybrid cryptocurrencies have the potential to improve payment efficiency (including cross-border payments) and promote financial inclusion. Despite this recognition, the FSB still opposes the widespread adoption of stablecoins, stating that stablecoins “may pose risks to financial stability, especially if stablecoins are adopted on a large scale.”
The FSB stated in a report that activities related to the Global Stable Currency Arrangement (GSA) “constitute risks that may span across jurisdictional and cross-border banking, payment, and securities/investment regulatory systems.”It is foreseeable that the report pointed out that with the widespread use of stablecoins, “depending on the facts and circumstances, specific money laundering/terrorist financing risks may arise”.
However, it is interesting that SWIFT reports: “Compared with money laundering through traditional methods, the confirmed cases of money laundering through cryptocurrency are still relatively small.” For example, data from the United Nations Office on Drugs and Crime It is estimated that the annual amount of money laundered through cash channels is between 800 billion and 2 trillion US dollars, which is equivalent to 2% to 5% of global GDP.
At the same time, the report lists other risks associated with stablecoins, including the decentralized nature of stablecoin arrangements. According to the FSB report, this arrangement brings “governance challenges.” In addition, “the infrastructure and technology used to record transactions and access, transfer, and exchange coins may pose operational and cybersecurity risks.”
The supply of stablecoins is negligible
However, despite increasing attention from regulators, the supply of stablecoins is still relatively low. According to Coinmetrics data, by October 2020, the total supply of stablecoins is expected to exceed 20 billion U.S. dollars, and on October 17, the market value of Bitcoin reached 211 billion U.S. dollars.
Nevertheless, based on the identified risks and challenges, the FSB still recommends that GSA must “comply with all applicable regulatory standards and deal with risks of financial stability before starting operations”.
The report also recommends that the authorities must “ensure that GSC arrangements have an effective risk management framework, especially in terms of reserve management, operational resilience, cyber security assurance and AML/CFT measures, as well as’appropriate and appropriate’ requirements.”
A coordinated global regulatory response
The FSB report was issued after the U.S. government issued a framework document for the implementation of cryptocurrency, and there are 10 recommendations. In 2019, when Facebook and its partners announced plans to launch the Libra stablecoin, financial regulators were shocked. Although the Libra project seems to be faltering, countries and regulators have been working hard to establish a framework to provide them with tools to control the stablecoin market.
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