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Stablecoins Emerge As One Of The Top Concerns For Governments

PAR002_123 • Oct 24, 2021

Stablecoins emerge as one of the top concerns for governments as CBDC's will likely take years to reach global adoption

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One of the primary concerns regarding stablecoins is the head start that Stablecoins have on central bank digital currencies (CBDC), which will likely take years to reach global adoption.

Regulators have discussed this at a global level with G20 finance ministers and central banks urging the FSB to consider whether any changes to stablecoin standards.

The regulatory approach towards stablecoins will affect how the sector develops, although the timeline and details of regulation in key markets – most notably the US and EU – remain unclear as jurisdictions have taken, or are considering, different approaches towards implementing recommendations. The EU, for example, is negotiating new regulations on crypto assets that would require stablecoins like Denmark’s eMoney.com tokens that are backed by a reserve of assets denominated in their underlying currencies to commit to transparency and compliance by confirming that each Stabletoken is backed with actual bank deposits and government bonds held at commercial banks. Recommendations range from vesting relevant authorities with regulatory oversight on global stablecoins to a “comprehensive governance framework” as it relates to cryptos pegged 1:1 to a sovereign fiat currency.

e-Money currently supports the Euro (EUR), Swiss Franc (CHF), Swedish Krona

(SEK), Norwegian Krone (NOK), and the Danish Krone (DKK) 

Because of the increasing market size, stablecoin operators could become significant investors in the U.S. Commercial Paper market, exceeding the holdings of money market funds within two or three years.

 

Other initiatives, including the potential launch of central-bank digital currencies, could also significantly affect demand for stablecoins.


The finding was mentioned in a recent FSB progress report for enhancing cross-border payments.

FSB publishes targets for enhancing cross-border payments and progress under its Roadmap


It follows the structure of the Stage 2 report, setting out actions and indicative timelines in the following five focus areas:


  • Committing to a joint public and private sector vision to enhance cross-border payments
  • Coordinating on regulatory, supervisory and oversight frameworks
  • Improving existing payment infrastructures and arrangements to support the requirements of the cross-border payments market
  • Increasing data quality and straight-through processing by enhancing data and market practices
  • Exploring the potential role of new payment infrastructures and arrangements




The FSB’s progress report acknowledged the market capitalization of existing stablecoins has continued to grow in the last two years, and that stablecoins could contribute to facilitating better cross-border payments.


the report said.


“From a policy perspective, there is value in assessing whether and how the use of well-designed global stablecoins could enhance cross-border payments. An action to that extent has been added,”

Overall, stablecoin issuers have minted more than $133 billion worth of tokens and large players in cross-border payments, like MoneyGram, are already looking to use private stablecoins such as USDC in speeding up cross-border transactions, and regulators are getting nervous.


The FSB roadmap is only the latest institutional document to consider the role of private stablecoins in cross-border transactions, and how they should be regulated. Last week, the BIS published guidance on how international payments laws could be applied to stablecoins.


Meanwhile, global financial institutions are encouraging central banks to explore CBDCs. The Bank for International Settlements (BIS) along with the International Monetary Fund (IMF) and the World Bank (WB) said central banks must consider the cross-border implications of CBDCs. Last month, Benoit Cœuré, the head of the BIS Innovation Hub, signaled central banks should speed up work on CBDCs in light of stablecoins.


Cœuré said,


“CBDCs will take years to be rolled out, while stablecoins and crypto assets are already here. This makes it even more urgent to start,”


The FSB roadmap also said the implementation of stablecoin regulations across its member jurisdictions is still at a very early stage, and that countries are considering varied approaches. Authorities in jurisdictions have identified several issues that might be getting in the way of making “concrete recommendations,” including redemption rights, wallet providers and the management of stablecoin reserve assets, according to the report.

 

the report said,


“As a next step, the FSB will review, in consultation with other relevant standard-setting bodies and international organisations, the FSB high-level recommendations and how any gaps identified could be addressed by existing frameworks”

 

The FSB previously said authorities had identified several issues relating to the implementation of its recommendations that warranted further consideration. Those include conditions for qualifying a stablecoin as a “global stablecoin” as well as investor protection and other requirements for issuers, custodians, and wallet providers relating to global stabelcoins.


A review of its recommendations, in consultation with other global standard-setting bodies, is expected to be completed in July 2023.



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