The European Central Bank, or ECB, pushed for clear regulatory parameters for stablecoins, citing risks as well as gaps in current regulations in its latest in-depth report on global stablecoins.
On May 5 ECB wrote in its report that:
“In order to reap the potential benefits of global stablecoins, a robust regulatory framework needs to be put in place in order to address these risks before such arrangements are allowed to operate.”
The ECB’s report noted several benefits around international stablecoins, including speed and simplicity. European Central Bank also detailed on the various risks and difficulties possible with such a currency type, including questions on stability, value and possible systemic failure.
Stablecoins provide an alternative to other, more volatile crypto-assets, but they can fall under very different regulatory regimes. Global stablecoins would need a robust regulatory framework as they could pose a risk to financial stability. Read more https://t.co/mdfAGS2LZm pic.twitter.com/Z5yApMJxC9 — European Central Bank (@ecb) May 5, 2020
One specific risk sees users not able to cash in on their exact “stable” value if the asset loses its value peg, or if its backing deviates from an expected level.
The report put it:
“There is a risk that end users will regard the stablecoin as being equivalent to a deposit, given the promise of ‘stable’ value and the possibility of converting coin holdings back into fiat currency at any time.”
The report also touched on the topic of regulation. Borderless stablecoins may or may not fit governmental frameworks in existence at present.
Depending on the their type, stablecoins can derive their value from a number sources, including mainstream financial assets, crypto assets and fiat currencies, making regulatory waters unclear.
Some stablecoins might even fall under the investment category rather than a source of stable value. The ECB further said:
“Given the complexity of its structure, a stablecoin arrangement could, depending on its specific design features, fall under one of a number of different regulatory frameworks – or, potentially, none of them.”
The ECB also studied on Facebook’s Libra in its report, relating various numbers and metrics to different scenarios. Although the ECB called for regulatory clarity, the governing body also mentioned on the need for a well-rounded approach.
ECB concluded:
“To reap their potential benefits without undermining financial stability, we must ensure that stablecoin arrangements do not operate in a regulatory vacuum.”
Source: Cointelegraph | Image: Unsplash