The Bank for International Settlements (BIS) supports the regulatory framework proposed by the European Union (EU), considering it to be the most comprehensive for regulating the stablecoin market and curbing its potential risks, especially in the Libra project.
Facebook, the social media giant, remains keen to launch its digital currency project Pound, while regulators do not look away to impose regulations that control and supervise the operation of this type of digital assets. Thus, the Bank for International Settlements (BIS), which serves as a bank for the world's central banks, recently published a report laying out its case for regulating the growing market for stablecoins, or stablecoins.
Qualified "Stablecoins: risks, potential and regulation", Stablecoins: risks, potential and regulation, The new report prepared by the BIS's Monetary and Economics Department proposes establishing registration and licensing for all those companies and businesses that wish to issue stablecoins, in order to effectively monitor the issuance and circulation of this type of currency, such as Facebook's Libra and other potential projects that exist in the global market.
The entity maintains that dynamic and adaptable regulations must be in place to regulate this market, but also regulations that allow for constant and automated monitoring of the issuance and circulation of stablecoins in the market, to verify compliance by companies that issue this type of digital currency.
In its report, the BIS also noted that the regulatory framework presented by the European Union, at the end of September, is one of the most comprehensive to regulate the growing crypto industry, as it proposes to cover the potential challenges and risks presented by both the introduction of cryptocurrencies, in the economy, such as the introduction of stablecoins, token usage and other financial instruments based on blockchain.
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Need for regulation of stablecoins
Stablecoins were created to offer a stable digital market to deal with the volatility of cryptocurrency prices. In this sense, the BIS recognizes that Libra has “serious potential” to emerge as a global currency in this regard, but it also represents a serious risk, due to its wide reach, for the monetary policies of nations.
For this reason, the BIS argues that regulators and competent authorities must be able to verify the development of stablecoins and the movements that are made with them, in order to constantly monitor their behavior in the markets and apply the necessary regulations to guarantee a healthy and responsible development of the crypto economy. To meet this objective, the BIS raises several important aspects, including: integrated supervision.
This concept of integrated supervision proposed by the BIS is based on the fact that stablecoin projects that use blockchain technology allow regulators to monitor the behavior of currencies in the markets, making integrated supervision possible by the authorities, by being able to verify the transactions carried out within the networks and check compliance by the issuers.
Regulation for general and global stablecoins
With this type of supervision, the BIS also seeks to develop an information base that allows it to design adjustable and applicable regulatory tools and frameworks according to the needs of the sector and the different stablecoins, which according to the entity can be categorized as general stablecoins and global stablecoins.
The entity argues that regulations on general stablecoins must allow for constant supervision, but also adapt to changes and market developments, to ensure an efficient approach to the implications of these currencies within the global economy. In the category of general stablecoins, the BIS points to stablecoins as Tether (USDT) y USD Coin (USDC).
The introduction of this type of oversight into general markets will also enable regulators and competent authorities to level the playing field to ensure a more balanced participation by large and small private companies, by facilitating compliance work and reducing associated costs.
For its part, the integrated supervision proposed by the BIS will allow regulators to establish stricter regulations for the control of global stablecoins, based on the potential risk they pose to the global economy. The BIS focuses primarily on global stablecoin projects such as Facebook's Libra, considering that they should have much stricter and more demanding regulations due to the great risk they represent for the monetary sovereignty of nations, as it is a privately issued digital currency accessible to billions of users around the world.
Libra Regulations
As the Bank for International Settlements points out, there is currently a large group of organizations and authorities focused on developing regulatory systems and frameworks to address the concerns that have arisen around the introduction of stablecoins into the markets. These organizations and authorities include the G20, G7, FSB, IOSCO, BCBS, and FATF, which have focused on studying the implications of the Libra project and how these may influence the global economy.
The BIS notes that Facebook's presentation of its digital currency project in 2020 was much clearer than its 2019 presentation, but that it continues to be criticized by regulators for doubts and irregularities that still persist. For example, its form of custody and its constant threat to replace sovereign currencies of nations, since Facebook users will be able to use Libra as an alternative to the money supply of several countries.
Facebook's digital currency offering has changed greatly since its initial announcement due to strong criticism and demands from regulators. Facebook has been involved in several security and privacy scandals that relate the data of the users of the social network, as in the case of Cambridge Analytica in 2018, where Facebook was accused of selling users' private data to companies and businesses for advertising purposes. These types of actions are what have largely slowed down the development of Libra, as Facebook's management creates distrust regarding the handling of financial data, despite the company insisting that the currency will not depend directly on Facebook.
Stablecoins, a bridge to central bank digital currencies
In its view, the BIS considers central bank digital currencies, also known as CBDC, are much more viable for the healthy development of economies than stablecoins, since CBDCs do not present the same potential risks or conflicts of interest as stablecoins, although there are still some doubts regarding their design and scalability. In his opinion, stablecoins can be a kind of bridge or innovation that allows the development of true payment alternatives, such as CBDCs.
“Today’s stablecoins could also eventually usher in other reforms. This may include robust sovereign-backed alternatives and new means of connecting central bank money across borders.”
Continue reading: CBDCs: the money of the next era and a potential threat to banks
