FSB issues a regulatory warning against the global stable coin

FSB believes that “stable coin” has the potential to improve the efficiency of financial service provision, but it may also have risks which will affect the financial stability—including financial stability risks to emerging markets and developing economies, and potential risks to retail investors.

In addition, the global stable coin may pose significant governance challenges for central banks. Especially as time goes by, citizens in developed and emerging market economies gradually begin to prefer stable coins to existing legal tenders, and then macro financial problems will arise at this time. Competent authorities in developed economies mainly pay attention to the decentralized design of stable coin, and believe that its reliability as a store of value has certain risks. At the same time, jurisdictions in emerging market economies have expressed great concern that stable currencies linked to foreign currencies will replace their own currencies, , retail deposits or safe assets. They worry that this will exacerbate bank runs and disconnect traditional financial institutions.

Another potential problem is that when macroeconomic conditions are in trouble (like the current COVID-19 pandemic), the global stable coin may essentially become a mixed retail repurchase market for the U.S. dollar. International regulators believe that if left it unchecked, the global stable coin may have a devastating effect on capital flows and local legal exchange rates, especially in emerging market economies. These potential risks may change over time, which will pose challenges to the effectiveness of existing regulatory supervision methods. Therefore, it will be important to ensure that appropriate regulatory approaches are adopted in cross sectoral and cross-border jurisdictions. The consultation report is a response to the G20's call for a review of the “GSC” in June 2019. The G20 called on FSB to review the regulatory issues raised by the arrangement of “so-called GSC”, to take the views of emerging markets and developing economies (EMDEs) into account and to provide suggestions on multilateral response measures.