Financial Stability Study Calls for Consistent Regulatory Response to Stablecoins

In simpler terms, the Financial Stability Institute recommends that countries align their rules governing stablecoins to ensure consistency among them, as stated in a report released on Tuesday.

The Financial Stability Institute (FSI), a collaboration between the Bank for International Settlements and the Basel Committee on Banking Supervision, aims to help regulators globally enhance their financial systems. In a recent report on policy implementation regarding stablecoins – digital currencies whose value is linked to other assets like sovereign currencies – the FSI raises concerns over potential supervisory fragmentation around the world.

The report, penned by FSI Deputy Chair Juan Carlos Crisanto and senior advisors Johannes Ehrentraud and Denise Garcia Ocampo, noted that stablecoins might lack regulation or only have minimal oversight in various other countries.

In their study, the authors pointed out that although various regulatory frameworks share common elements regarding essential conditions, the significant distinctions mainly stem from the diverse characteristics of stablecoin designs and perceived risks. However, it is important to note that this disparity in regulatory approaches could create obstacles for a unified financial system and potentially undermine financial stability.

Countries have been working on finding ways to oversee stablecoins since several years ago. For instance, the U.K. acknowledged stablecoins as a payment method through legislation in 2023. On the other hand, the European Union introduced the Markets in Crypto Assets regulation (MiCA) to monitor issuers and service providers dealing with stablecoins. Japan has also begun regulating these digital currencies, while the U.S. is currently discussing a potential bill on the matter.

According to the FSI report, different regulatory bodies have diverse interpretations and classifications of stablecoins which could potentially endanger financial stability. Additionally, there is a lack of uniformity when it comes to the transparency requirements for stablecoin issuers regarding the disclosure of their reserve assets that help maintain the value of the crypto relative to its reference currency.

In simpler terms, having a uniform set of rules for regulating stablecoins, along with their worldwide application, is crucial to mitigate risks, avoid regulatory loopholes, and maintain fairness among different types of digital assets. (FSI report)

Making sure that stablecoins can work smoothly with central bank digital currencies (CBDCs) and various other digital assets is essential for creating a unified financial system, according to the report.

The International Monetary Fund (IMF) and Financial Stability Board (FSB) are developing or have proposed common guidelines for the use of stablecoins as global institutions.

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