A report by the G7 group titled ‘To G20 Finance Ministers and Central Bank Governors’ reveals that even if the Libra Association were to comply with all enforced regulatory guidance, the Libra cryptocurrency would still not receive approval from regulatory entities. Additionally, the group believes that stablecoin solutions that act global represent a disruptive issue that could threaten the global economy.
“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.”
As for why stablecoins act as a risk to the global economy, the G7 argues that if they were to swiftly scale and become massively adopted, financial stability would be at risk if investors would at one point lose confidence in the solution. Moreover, it is rumored that the report will be shown to finance ministers at an annual meeting this week held by the International Monetary Fund.
Furthermore, the report also discusses the problems that the global economy currently faces such as the weakening of financial markets, escalating public debt, and declining interest rates. Some analysts hold the view that if adopted, cryptocurrencies could tip traditional finance to its edge and cause a crisis worse than the 2008 recession. To combat the disruptive sector, the Financial Stability Board developed several tools such as a new surveillance framework, which is planned to launch next year.
Interestingly enough, the report notes that digital assets such as Bitcoin do not represent a threat to the global economy. ‘G20 leaders noted that crypto-assets do not pose a threat to the global financial stability at this point, but that they remain vigilant to existing and emerging risks’ claims the report.
In a document titled ‘Understanding the crypto-asset phenomenon, its risks and measurement issues’, the European Central Bank (ECB) expressed a similar view.
According to the document, the ECB also believes that at the current stage, cryptocurrencies do not pose a significant threat to the global economy. However, they have the chance to disrupt traditional finance if adopted massively. To prevent this, the ECB is working on several solutions as well.
Central Bank Digital Currency (CBDC) is believed to be a key weapon against the rising cryptocurrency sector. Instead of outright banning or allowing the development of cryptocurrencies, banks decided to develop their own solutions.
By doing so, banks will ensure their future and will at the same time increase their scalability and improve their internet banking platforms. While the Bank of England was the first Central Bank to seriously consider the option, the People’s Bank of China is the first entity to actively work on a solution.