A draft of a new report from the Group of 7 (G7), a cohort of the world’s seven largest IMF-described “advanced economies,” has declared that global stablecoins pose a threat to the global economy. While the report did not specifically point to Libra (Facebook’s global stablecoin), the report did outline nine risks associated with “global stablecoins” with the potential to “scale rapidly.”
According to a report from the BBC, the G7 taskforce that wrote the report includes representatives from some of the involved nations’ central banks, the International Monetary Fund (IMF), and the Financial Stability Board (or FSB; a group that monitors and makes rules for G20 economies.) The report will be presented to finance ministers at the IMF’s meetings this week.
Addressing regulatory concerns “is not necessarily a guarantee of regulatory approval for a stablecoin arrangement.”
The report warned that projects like Libra might not be allowed to move forward even if the project addresses regulators’ concerns:
“The G7 believes that no stablecoin project should begin operation until the legal, regulatory and oversight challenges and risks are adequately addressed. […] Addressing such risks is not necessarily a guarantee of regulatory approval for a stablecoin arrangement.”
The report also said that global stablecoins must ensure that their backers are legally sound and that they must protect consumers; global stablecoins must also not be used to launder money or to fund terrorism.
Furthermore, the task force also expressed concern that Libra could potentially stifle competition from other stablecoin providers, and that global financial stability could take a hit if there is a sudden “loss of confidence” amongst users of a global stablecoin.
The Financial Stability Board “[has] already begun work in this area.”
In a letter addressed to the “G20 Finance Ministers and Central Bank Governors,” FSB Chairman Randal Quarles said that “stablecoin projects of potentially global reach and magnitude must meet the highest regulatory standards and be subject to prudential supervision and oversight. Possible regulatory gaps should be assessed and addressed as a matter of priority.”
Quarles also explained the ways that the G7 and the FSB are working together to address these gaps: “the G7 working group on stablecoins is delivering a preliminary assessment of opportunities and challenges posed by ‘global stablecoins’ The G7 working group will be handing off work on regulatory issues to the FSB, and we have already begun work in this area.”
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Regulatory concerns weigh on Libra backers
France, which currently holds the G7’s rotating presidency position, formed a G7 task force to address stablecoins after Facebook announced the Libra project in June.
When the task force was created, the governor of France’s central bank, Francois Villeroy de Galhau, said that “we want to combine being open to innovation with firmness on regulation. This is in everyone’s interest.”
News of the G7’s latest report comes just over a week after payments company PayPal became the first of Libra’s original backers to step away from the project. Several days later, Mastercard, eBay, and Stripe followed.
Before the companies withdrew from the project, Bloomberg reported that Visa, Mastercard, and Stripe Inc. have also privately expressed concerns about the damage that their associations with the project could do to each company’s relationship with regulators.
Additionally, Finance Magnates reported last week that two US Senate democrats–Senator Sherrod Brown of Ohio and Senator Brian Schatz of Hawaii–urged the three payments companies to reconsider their association with Facebook’s ambitious crypto project following PayPal’s withdrawal.
> This is the type of letter executives at @stripe, @Mastercard and @visa (former @Libra_ members) have received.
> Many executives may have chosen not to experiment and innovate in order to avoid regulatory pressure!Sad!
> America can do better!
> Source: https://t.co/M36bkEKJU9 pic.twitter.com/kF3AXf9Xvd
— Gabor Gurbacs (@gaborgurbacs) October 12, 2019