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G20 group sees stablecoins as threat to financial stability

According to the Group of 20 nations, stablecoins of all sorts can pose a threat to financial stability, and they need to be
According to the Group of 20 nations, stablecoins of all sorts can pose a threat to financial stability, and they need to be adequately regulated.

The G20’s Financial Stability Board (FSB) issued a comprehensive stablecoin study today, presenting several recommendations to regulate them effectively. The regulators were compelled by the introduction of Facebook’s Libra, which would create an independent stablecoin based on a basket of currencies, to interfere and recommend regulatory guidelines. The study by FSB notes that existing financial rules generally apply to stablecoins as well, but the board believes that the rules should be the same for all businesses that present financial risk, regardless of what technology they use.

FSB recommends Anti-Money Laundering and Counter-Terrorism Financing controls.

The Financial Stability Board issued common recommendations such as strict Anti-Money Laundering and Counter-Terrorism Financing controls along with several other plans to regulate cryptocurrency. The board also recognized existing stablecoins, including tokens like Dai, but concluded that they are currently too small to pose systemic risks on the financial system. The board elaborated that some of the concerns regarding stablecoins are largely related to their lack of adoption, as the researchers believe that even small deviations from their peg may have significant financial implications in the mainstream settings.

FSB believes stablecoins’ ability to transact freely could be a major financial stability threat.

The most critical issue for the Financial Stability Board appeared to be that of capital controls. The report says that during periods of stress, households in some countries might come to regard stablecoins as a safe store of value over the existing fiat currency and exacerbate destabilizing capital flows. Volatile capital flows can have a destabilizing effect on exchange rates and domestic bank funding and intermediation.” The board believes that the ability of stablecoins to transact freely is also a major financial stability threat. This can be seen in countries like Lebanon, which imposed strict capital controls in 2019, and citizens were barred mainly from their bank savings.

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