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The Financial Stability Board is a group of central bankers and financial regulators representing all G20 countries. It warned that stablecoins don’t exist. The board made top-level recommendations to regulate digital currencies. A final, more detailed report is expected by the middle of next year.

The Financial Stability Board today concluded that no stablecoin meets the current standards for digital assets set by central bankers from the world’s biggest economies.

Financial research and policy is a group of senior central bankers and regulators representing large economies. It does not create binding rules. A set of high-level recommendations about crypto assets and warnings about stablecoins, on the other hand, would be considered significant by policymakers and financial institutions around the world.

The G20 organization released two reports on Tuesday. 

The first report focuses on high-level recommendations regarding crypto assets. It was released Tuesday by the regulatory body. Another is an assessment of whether stablecoin issuers meet the 2020 “High-Standard Criteria”.

According to the FSB:

The FSB cited limitations on redemptions including the ability to delay or deny them. It found that most users had to sell their stablecoins on an exchange in order to liquidate them. And the price could fall below the currency the coin is tied to.

The FSB also questioned how stablecoins could maintain their pricing in market stress. They concluded that “most stablecoins allow arbitrage activities by market participants and to a considerable degree rely on them” and that it was unclear how this would hold up under adverse economic conditions. This raises questions about the effectiveness and efficiency of stabilization mechanisms to support a stable price at all time.

Research on stablecoins is being done in the context of the U.S. Federal Reserve, European Central Bank and other central banks weighing whether to issue digital currencies.

The FSB also cites the collapse of Terra as an example of “the inherent difficulty of designing a robust stability mechanism based upon an algorithm and arbitrage strategy involving assets that have no inherent value.

The board recommends that stablecoins be subject to the same rules as banks, a recommendation which has been discussed by the U.S. Congress. A shorter report on crypto asset regulation, which is similar to the stablecoins findings in its length, recommends the same activity, same risk and same regulation approach to digital assets. This approach is also similar to that taken by U.S regulators such as the Securities and Exchange Commission and Commodity Futures Trading Commission.

The comments period for the FSB’s Crypto Asset Regulations will remain open until December 15, and the organization plans on issuing comprehensive final recommendations by mid-2023.

The post Stablecoins are NOT Stable say Central Bankers of The G20 first appeared on The Daily Encrypt.


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Angie Byrd