While many support the idea of stablecoins because they don’t come with the volatility seen with other assets, many are still circumspect. According to a recent study from the Group of 20 (G20), stablecoins could be problematic.
The Group’s Financial Stability Board (FSB) recently released a study dubbed “Addressing the regulatory, supervisory and oversight challenges raised by “global stablecoin” arrangements.” In the study, the group suggests that stablecoins could be a threat to financial stability if there isn’t proper regulation to govern them.
Even though Facebook’s Libra isn’t the first stablecoin announced, it received a lot of attention when it was revealed by the social media giant. Facebook has now modified its Libra plans, but certain groups are still wary.
According to the study, stablecoins could pose serious threats because they could easily gain widespread adoption. This could be problematic for several fiats.
“During periods of stress, households in some countries might come to regard [stablecoins] as a safe store of value over existing fiat currencies and exacerbate destabilizing capital flows. Volatile capital flows can have a destabilizing effect on exchange rates and on domestic bank funding and intermediation.”
In 2019, at a G20 summit in Fukuoka, Japan, the Group called for close monitoring of risks posed by digital assets.