G7 Working Group Sees Stablecoins As Potential Threat to Global Financial Stability

Being unsatisfied by Facebook’s plan of launching its Libra cryptocurrency, the G7 economies of the world are now assessing whether stablecoins pose any threat to the global financial stability.

Stablecoins are cryptocurrencies whose values are pegged to any fiat currencies or commodities like gold, diamond, etc. which are not very volatile in nature.

Last Sunday, October 13, chairman of the Financial stability Board (FSB) Randal Quarles wrote a letter to the G20 finance ministers. The letter mentions that the G7 working will deliver a detailed assessment of the challenges and opportunities posed by global stablecoins.

The letter notes that stablecoins have the ability to scale rapidly while stifling competition. Moreover, if users lose confidence in them, they could be detrimental to the financial stability.

The letter states: "The G7 believe 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.”

This report shall be present to all the G20 finance ministers gathering at the annual meeting of the International Monetary Fund, this week.

Another report from the BBC shows that even if the Libra Association addresses several concerns, it does not necessarily mean that the project could get an approval from the regulators.

The G7 draft report mentions that “Addressing such risks is not necessarily a guarantee of regulatory approval for a stablecoin arrangement”.

Facebook is currently facing a critical moment and being attacked from all ends. If the regulatory action was not enough, now even the members of the Libra Association have started withdrawing.

Financial giants like MasterCard, Visa, PayPal, and others have announced their exit from the Libra Association owing to regulatory pressure. While no one has explicitly mentioned the reason for their exit, it is clear that such big organizations don’t want to ruffle their feathers with the government agencies.

While announcing the exit, a spokesperson from Visa said: “We will continue to evaluate and our ultimate decision will be determined by a number of factors, including the Association’s ability to fully satisfy all requisite regulatory expectations.”

Facebook CEO Mark Zuckerberg will be testifying next week on October 23 in front of the U.S. lawmakers clarifying all things about Libra and its roadmap ahead.