At a global level, regulators have engaged in discussions with G20 finance ministers and central banks, urging the Financial Stability Board (FSB) to evaluate potential modifications to stablecoin standards.
The regulatory stance on stablecoins will have significant implications for the growth of the sector, even though the timelines and specifics concerning regulation in key markets – particularly the US and EU – remain ambiguous, as different jurisdictions are adopting or contemplating varied strategies to implement recommendations. For instance, the EU is currently negotiating updated regulations on crypto assets requiring stablecoins, like Denmark’s eMoney.com tokens that are supported by a reserve of assets in their underlying denominations, to ensure transparency and compliance by verifying that every Stabletoken is supported by real bank deposits and government bonds held with commercial banks. Recommendations range from empowering relevant authorities with regulatory oversight on global stablecoins to establishing a “comprehensive governance framework” concerning cryptos pegged 1:1 to a national fiat currency.
Due to the expanding market size, operators of stablecoins may emerge as prominent investors in the U.S. Commercial Paper market, potentially surpassing the holdings of money market funds within the next two to three years.
Additionally, other initiatives like the proposed introduction of central-bank digital currencies could notably impact stablecoin demand.
This finding was highlighted in a recent FSB progress report aimed at enhancing cross-border payments.
The FSB has established targets for improving
cross-border payments and progress via its Roadmap
The report follows the outline of the Stage 2 report, detailing actions and indicative timelines across the following five key areas:
- Commitment to a unified public and private sector vision to improve cross-border payments
- Coordination of regulatory, supervisory, and oversight frameworks
- Enhancing current payment infrastructures and arrangements to meet the needs of the cross-border payments market
- Improvement of data quality and straight-through processing by refining data and market practices
- Investigating the potential function of new payment infrastructures and arrangements
The FSB’s progress report recognized that the market capitalization of existing stablecoins has continued to rise over the last two years, indicating that stablecoins could aid in facilitating more efficient cross-border payments.
the report stated.
“From a policy viewpoint, it is beneficial to examine whether and how the utilization of well-structured global stablecoins could improve cross-border payments. An action in that direction has been initiated,”
In summary, stablecoin issuers have created over $133 billion worth of tokens, and major players in cross-border payments, such as MoneyGram, are already seeking to utilize private stablecoins like USDC to expedite cross-border transactions, which is causing regulatory concerns.
The FSB roadmap is the latest institutional document to explore the role of private stablecoins in cross-border transactions, along with the necessary regulations. Recently, the BIS released guidance on how existing international payment laws could apply to stablecoins.
Simultaneously, global financial institutions are urging central banks to investigate CBDCs. The Bank for International Settlements (BIS), together with the International Monetary Fund (IMF) and the World Bank (WB) indicated that central banks should contemplate the cross-border ramifications of CBDCs. Recently, Benoit Cœuré, the head of the BIS Innovation Hub, stressed that central banks should accelerate their work on CBDCs in response to the emergence of stablecoins.
Cœuré expressed,
“CBDCs will require years for full deployment, whereas stablecoins and crypto assets are already operational. This heightens the urgency to begin action,”
The FSB roadmap also noted that the adoption of stablecoin regulations across its member jurisdictions remains in very early phases, with countries considering various approaches. Authorities in these jurisdictions have identified several challenges that may be hindering the formulation of “concrete recommendations,” including the rights of redemption, wallet providers, and the administration of stablecoin reserve assets, as indicated in the report.
the report stated,
“As a subsequent step, the FSB will evaluate, in collaboration with other relevant standard-setting entities and international organizations, the FSB high-level recommendations and determine how identified gaps could be addressed through existing frameworks”
Previously, the FSB pointed out that authorities had recognized several issues pertaining to the realization of its recommendations that warranted further investigation. These include criteria for classifying a stablecoin as a “global stablecoin” along with requirements for issuer protection and other stipulations for custodians and wallet providers concerning global stablecoins.
It is anticipated that a review of its recommendations, in collaboration with other global standard-setting bodies, will be completed in July 2023.
