Senior Financial Regulators: Warn of Crypto Stablecoin Threat to Economy
Over the past three to four years, stablecoins, crypto assets tied to a stable asset (usually the U.S. dollar), have made a strong entree into the blockchain scene.
Since their introduction, this subset of crypto assets has exploded, seeing mass adoption across blockchains and by firms across the ecosystem.
In fact, the aggregate value of all stablecoins has surmounted $5 billion, comprising a fair portion of the entire cryptocurrency market’s capitalization.
Due to the growing level of traction that these digital assets have seen over recent memory, the U.S. Treasury is starting to fear that stablecoins, which is an umbrella term that includes the yet-to-launch Libra, could pose a threat to the economy.
A group under the Treasury went as far as to release a report on December 4th outlining the threats and risks of widespread stablecoin adoption.
Stablecoins a Threat to Economy?
In a report entitled “2019 Annual Report,” the Financial Stability Oversight Council, a consortium of senior financial regulators put together after 2008’s Great Recession that exists under the Treasury, claimed that stablecoins could affect the wider economy if they became “widely adopted as a means of payment or store of value.”
This echoes concerns from a report from some of the world’s largest economies published in October. The report, published by a working group of the Group of 7, indicated that the introduction of global stablecoins could pose a “host of challenges” to governments.
A large number of pertinent challenges were identified, including compliance with global AML and KYC laws, consumer and business privacy, potential tax evasion enabled by these tokens, and the integrity of markets.
These reports, notably, were made seemingly in response to Facebook’s global stablecoin project, Libra, which is still expected to launch late next year. Though, it seems that assets like USD Coin of Coinbase and Circle and Tether’s USDT are still under the microscope of regulators.
Taking Action
The Treasury isn’t just releasing reports to deter the rise of stablecoins. The Financial Crimes Enforcement Network (FinCEN), a branch of the Treasury focused on deterring financial crimes, recently asserted that stablecoins fall under its jurisdiction.
Speaking at Chainalysis Links conference in New York last month, FinCEN Director Kenneth Blanco remarked that stablecoins fall under the definition of “money transmission services,” and thus will need to register with authorities as an official Money Services Business (MSB):
“It does not matter if the stablecoin is backed by a currency, a commodity, or even an algorithm (in reference to MakerDAO’s native DAI stablecoin) – the rules are the same… FinCEN applies the same technology neutral regulatory framework to any activity that provides the same functionality at the same level or risk, regardless of its label.”
It isn’t clear if there are any concrete moves being made towards stablecoin regulation as Blanco implies, or how such a system regulating stablecoins will work, though it is clear that this subset of the cryptocurrency market will be coming under more scrutiny heading into the future.
Countries Taking Steps to Launch Digital Currencies
Despite the array of threats posed by stablecoins, nations and their central banks are moving forward with launching digital currency initiatives.
Earlier this week, the governor of the Bank of France, the nation’s central bank, revealed in a surprise statement that his organization will be moving forward with launching digital currency pilots by the end of Q1 2020 at the latest.
There are also expectations that China will launch its digital renminbi within the coming year or two, which is especially pertinent due to the country’s newfound blockchain ambitions.
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