Global stablecoins, such as Facebook's Libra, pose risks to financial stability, anti-money laundering efforts, anti-trust policy, and even monetary sovereignty, a new G7 working group has warned.
Libra has faced a barrage of push-back from politicians and regulators since it was unveiled by Facebook and its partners earlier this year.
Earlier this week, US Federal Reserve governor Lael Brainard warned of the struggle the cryptocurrency faces to get off the ground, echoing the sentiments of the Bank for International Settlements' powerful Committee on Payments and Market Infrastructure. The reaction has seen the likes of Visa, Mastercard, PayPal and Stripe pull out the project.
Now, a G7 working group on stablecoins has published the findings of its own investigation into the area. The report acknowledges that stablecoins could help to usher in faster, cheaper and more inclusive payments while addressing the volatility problem posed by traditional cryptocurrencies.
However, stablecoins also pose huge risks and must address concerns around issues such as legal certainty, AML, cyber security, market integrity, data privacy, and consumer protection.
For global stablecoins, the stakes are even higher. While not naming Libra, the report says: "Some risks are amplified and new risks might arise if adoption is global in nature. Stablecoin initiatives built on an existing - large and/or cross-border - customer base may have the potential to scale rapidly to achieve a global or other substantial footprint."
Global stablecoins could have "significant adverse effects" on the transmission of monetary policy, as well as financial stability and efforts to combat money laundering and terrorist financing. They could also, through currency substitution, pose challenges to monetary sovereignty.
The working group warns that stablecoin developers must have a "sound legal basis" in all relevant jurisdictions, adding: "Ambiguous rights and obligations could make the stablecoin arrangement vulnerable to loss of confidence - an unacceptable risk, especially in a payment system of potentially global importance."
Meanwhile, the report calls for coordination among authorities around the world and says that public players should innovate in payments, with central banks continuing investigations into the possibility of issuing their own digital currencies.
An executive at one central bank - Sweden's Riskbank - recently told CoinDesk that Libra "showed there is a demand for something that central banks have not yet delivered, which is cheap, efficient cross-border payments".
Read the full G7 report:Download the document now 556.9 kb (Chrome HTML Document)