Global stablecoins (GSCs) – cryptocurrencies that are pegged to an underlying asset, usually but not exclusively a government fiat currency – have been singled out for review in a newly published 67 page document by the Financial Stability Board (FSB).
The FSB are warning of the potential risks such assets pose to the global financial system calling on central banks to assess how they intend to regulate, supervise and oversee the issuance of stablecoins.
FSB consults on recommendations to address the regulatory, supervisory & oversight challenges raised by “global stablecoin” arrangements #stablecoins #cryptoassets https://t.co/nCDcavuhqj pic.twitter.com/EO3yuJDqmf
— The FSB (@FinStbBoard) April 14, 2020
As a consultative paper, the document asks for feedback by mid July 2020 on several points of reference, including agreeing the defining characteristics of stablecoins, their risks and vulnerabilities, reviewing oversight issues and establishing tools of control.
Established at the G20 summit in London during the last financial crisis in April 2009 and tasked with monitoring and making recommendations on a global level, the FSB includes representatives from all the G20 countries and the European Commission but is hosted and funded by the Bank for International Settlements (BIS) in Basel.
In 2018, the then Chairman of both the FSB and the Bank of England, Mark Carney, advised that crypto-assets, “…do not pose risks to global financial stability at this time.”
Later that year, the Chairmanship passed to the current Governor and Vice Chairman for Supervision of the US Federal Reserve, Randal Quarles, and since then a change of opinion has emerged on the level of challenge involved with digital assets.
In June 2019 and again in February 2020, the FSB were mandated by the G20 to specifically examine global stablecoins.
The executive statement in the new document demonstrates the FSB current position by stating that although stablecoins and crypto-assets “…have the potential to enhance efficiency of the provision of financial services [they] may also generate risks to financial stability.”
A recent article by OKEx highlighted the explosive growth of stablecoins which have seen an increase of 33% in the last month alone, reaching a combined total circulation of over $8.2 billion.
While stablecoins come in various guises, by far the most prominent is Tether (USDT), which is supposedly backed by different forms of collateral including a portion of US federal reserve notes. According to the latest figures from dapptotal, USDT accounts for over 80% of the stablecoin market.