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BIS GM issues Facebook stablecoin warning

BIS GM issues Facebook stablecoin warning

The rise of Big Tech and its incursions into payments through projects such as Facebook's Diem stablecoin, could concentrate market power and threaten financial stability, challenge bank business models, and fragment the monetary system, warns BIS general manager Agustín Carstens.

In a week when Facebook has been in the news over whistleblower allegations and a hours-long outage across its apps, Carstens has used a BIS conference on regulating Big Tech to raise the alarm about the social network's move into financial services.

In a speech, he raises the prospect of Big Tech firms moving beyond the provision of front end payment services, tapping their large networks and data to develop their own back-end.

Currently, regulatory barriers to establishing private payment networks are low, meaning that closed-loop payment networks operated by just a few big techs is a real risk, says Carstens.

This "would lead to a fragmentation of payments and represent a threat to the public good character of the payment system".

However, a bigger threat is posed by the prospect of Big Tech not only operating their own payment system but also issuing a stablecoin for exclusive use in their system - like the Facebook Diem proposal.

Data from payment transactions would enhance Big Tech's ability to exploit the DNA loop, which could further concentrate market power in the hands of a few, and threaten financial stability, fair competition and data governance, says the speech.

If these new payment instruments affect demand for bank deposits, they could threaten bank business models, requiring them to look for more costly and less stable sources of funding.

Thirdly, funds collected by big techs by issuing stablecoins could become quite large, and could be moved around rapidly by users, including across borders. "In this type of scenario, stablecoins could erode a jurisdiction's monetary sovereignty and its unit of account through 'Diem-isation'," says Carstens.

The BIS boss says that a regulatory response to these concerns could involve using competition policy, data governance and imposing financial stability requirements.

Earlier today it emerged that international financial watchdogs are close to approving new rules on the use of stablecoins in financial markets, using the 'same risk, same regulation' mantra that has been applied to discussions over the reining in of Big Tech and non-bank payment companies.

Meanwhile, Carstens says that central banks can work to spur improvement in current payment systems and, in the most far-reaching response, roll out their own digital currencies.

Comments: (1)

Kris Vlas
Kris Vlas - http://TradeSanta.com - Boston 11 October, 2021, 08:36Be the first to give this comment the thumbs up 0 likes

private cryptocurrencies like Facebook Diem and others can concentrate a lot of the market power into the hands of a few private players putting the financial ecosystem at risk