Recently, the Libra Association revamped the Libra coin, in a bid to appease regulators. The changes to the structure of Libra were announced two days after the FSB, established by the G20, made 10 policy recommendations on how to deal with digital assets such as Facebook Libra. According to the Financial Stability Board, the policy recommendations are meant to protect economies from disruptions caused by global stablecoins such as Libra.
The Recommendations
According to the document released by the FSB, stablecoins should follow the same rules followed by other businesses with the same level of risk. According to the recommendations, the technology used should not offer such projects any special privileges.
The FSB noted that the current financial rules, which govern payments and customer checks, apply in whole or in part to stablecoins. Besides that, it notes that the rules address some of the risks that arise from the issuance of stablecoins. However, it notes that coverage can be patchy in some countries, which could lead to gaps in how a cross-border stablecoin is governed.
The FSB proposed the creation of flexible cross-border cooperation, which would ensure that stablecoins do not play different jurisdictions against each other. According to the FSB, regulators should offer clarity on their regulatory powers and address gaps that might arise in their domestic regulations to address the risks that come with a global stablecoin.
According to the report, operators of stablecoins must have measures in place to deal with risks, be operational resilient, and have measures in place to protect them against cyber hacks. Besides that, they must have measures in place to prevent terror financing and money laundering.
Some Companies Have Backed Out
Since Libra was announced, some of the founding members such as PayPal, Visa, and Mastercard have left the project due to pressure from regulators. Central bankers globally have been opposed to the project. They believe that Libra should only be allowed to launch once the right rules are in place.
The huge influence that Facebook has globally would make Libra an instant hit. As a result, it would immediately become a rival to the current monetary system, according to central bankers. Recently, the company revamped the coin. It said that it still planned to issue the Libra coin, it would also issue stablecoins backed by national currencies.
In the past, the Libra Association has said it welcomes oversight by government regulators. Since Libra was announced, several central banks have started investigating the issuance of national digital currencies. The threat of losing control over their monetary policies to Libra has been a major catalyst for them to consider issuing a national digital currency.
Current Stablecoins
There are existing stablecoins in the world but they do not pose much of a risk to the global monetary system. For instance, Tether USDT, the largest stablecoin by market cap, only has a market cap of around $6.3 billion. As a result, the recommendations by the FSB were most likely in direct response to the potential launch of Facebook Libra.
Stablecoin Growth
When stablecoins started surfacing in 2018, many investors showed little interest. This was simply because stablecoins didn’t have the same type of growth opportunity as traditional cryptocurrencies like Bitcoin, Ethereum, and XRP. As the industry started to realize the utility behind stablecoins, the narrative shifted. Aside from digital asset investors, large entities like JP Morgan, Facebook, and even the Federal Reserve have been studying the potential use cases within the global economy.
According to a report in 2019 by TradeBlock, stablecoin transactional volumes surpassed Venmo. stablecoins such as Tether, USD Coin, Dai, and Paxos are still extremely foreign to an average individual. Venmo on the other hand is extremely popular, catering to 7+ million users. Companies like Facebook saw what was going on beneath the surface. For stablecoins to see these growth metrics in just a couple years is a pure sign that utility and interest exists.
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