Stablecoins could undermine financial stability and major world economies must confront this risk by implementing a suitable regulatory framework, the Financial Stability Board (FSB) said in a document released on Tuesday.
The FSB, an international body that monitors and helps shape policy related to the global financial system, listed 10 recommendations about stablecoins for the Group of 20 Economies’ (G20).
The document suggested that stablecoins should face the same rules as other businesses that present the same risks. Although stablecoins may help contribute to a new global payments system, “such instruments may have the potential to pose systemic risks to the financial system and significant risks to the real economy, including through the substitution of domestic currencies.”
The FSB also said there should be cross-border cooperation to avoid a stablecoin playing off one jurisdiction against another, and that stablecoin companies must effectively manage risks, be operationally resilient, have safeguards against cyber attacks, and systems for stopping money laundering and terrorist financing.
“Relevant authorities should, where necessary, clarify regulatory powers and address potential gaps in their domestic frameworks to adequately address risks posed by global stablecoins,” the document reads.
The FSB’s recommendations follow a wave of newfound attention for stablecoin projects from global regulators--largely stemming from Facebook’s entry into cryptocurrency with Libra. Though the social media giant has previously insisted that Libra is not a stablecoin, Facebook CEO Mark Zuckerberg conceded to US lawmakers that it could be considered as such during a hearing in October.
Faced with pressure from various governments and regulatory bodies, companies that previously backed the Libra have since dropped out of the project due to a lack of clear-cut regulatory framework and possible risks involved in the launch of the cryptocurrency.
Since then, Facebook has been rethinking just how the currency will work.
The FSB’s latest document is not the first time the global regulators have issued warnings about stablecoins. Last year, a G7 working group warned that stablecoins could pose a threat to market integrity.