The US central bank, Federal Reserve is commonly known as the Fed, has finally agreed that stablecoins pose a threat to the fiat dollar as a global medium of exchange. The Fed has stated that stablecoins like Facebook’s Libra have the capability of being the ‘fresh medium of exchange’. However, the Fed gave a caveat that stablecoins must be well designed and regulated, The Block reports.
The Fed released its Financial Stability Report on Friday which explained that global stablecoins like Libra have the ability to attract widespread adoption in the world.
The report, however, states that if improperly designed coupled with a lack of regulations, stablecoins can pose a threat to the global financial stability. The report says that stablecoins should be easily converted to domestic fiat money on-demand as well as be able to make payments on time. The central bank opines that failure by the holders to liquidate their coins can lead to dire consequences to local and global economies affecting asset prices as well as financial stability.
The central bank states that stablecoins must adhere to the set guidelines and regulations on anti-money laundering as well as counter-terrorism financing laws. The report adds that stablecoin issuers must reveal their terms in a transparent manner explaining how their stablecoin is pegged to a given asset. The report adds that the holder’s data privacy is very important and must be well guarded and maintained.
The Fed supports the recent pronouncements by the G7 group of most developed economies in the world, where finance heads have said that stablecoins like Libra should not be launched until all the underlying regulatory as well as oversight challenges are dealt with. Lately, France and Germany have been vocal in urging other developed countries to disallow the launching of Libra in their jurisdictions until all the concerns raised are dealt with completely.
The report by the Fed can be said to be optimistic albeit the few caveats and warnings. It seems that the Fed is ready to work with the Libra organization in ironing some of the concerns raised by the policymakers.