Central bankers want stablecoin regulation similar to banking

Table of Contents

• Stablecoins
• Opinion

The Financial Stability Board (FSB) has just published two reports that contain recommendations for frameworks to comprehensively govern crypto-assets, and stablecoins.

The Financial Stability Board is composed of central bankers who are putting the word out that the crypto sector can reach the point where it could threaten the stability of the financial system.

The FSB appears to view crypto in quite a simplistic way, given that it insists that regulation should be along the lines of “same activity, same risk, same regulation.”

For central bankers, looking at the crypto sector through the lens of the traditional banking system, it cannot be easy to see the sector from any kind of sympathetic viewpoint, given that crypto’s raison d’être is to eventually replace the current financial system.

The FSB doesn’t actually make regulations that can be imposed on financial assets, but it does carry huge weight, given that it has bankers and regulators in its ranks from most major economies across the globe.

So far, the recommendations in the FSB reports are open for consultation and comments until mid-December. The plan then is to issue a final comprehensive set of recommendations some time in the middle of 2023.

Stablecoins

The FSB discusses what for it is the issue of “interlinkages” between crypto-assets and the traditional financial system, and therefore believes that high regulatory standards should be imposed which also assure proper supervision and oversight of stablecoins.

Stablecoins themselves are very much a concern for the FSB as it believes that users should have strengthened redemption rights, and that there should be a “robust stabilisation mechanism”.

The FSB also worries about the ability of stablecoins to retain their stability at all times, even when markets become severely stressed. The FSB stated:

“most stablecoins enable arbitrage activities of market participants and to a considerable extent rely on them,”

The FSB also raised questions about:

“the effectiveness of the stabilisation mechanisms in supporting a stable price at all times.”

Opinion

The FSB mainly comprises senior bankers and regulators, who are not elected by any of the populations they are supposedly there to serve. Therefore it is to be wondered if this is just another attempt to squash the life out of crypto before it gets too established.

That this financial organisation should be so interested in the stability of the tiny market that is crypto when the fiat monetary system appears to be going through its death throes is also cause for wonder.

In the minds of the central bankers the last gasp chance for the financial system is a roll-out of central bank digital currencies (CBDCs). Should they manage to effect this, then total control of all currency would be theirs. 

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.