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G20 sets ground rules ahead of Libra stablecoin on Facebook

Image from:- REUTERS/Dado Ruvic/Illustration/File Photo

The world's leading economies need to plug gaps in their rulebooks to prevent digital currencies like the planned Facebook Libra stablecoin from undermining financial stability, the regulatory watchdog for the Group of 20 Economies (G20) said on Tuesday.

Stablecoins are linked to a traditional currency or asset basket, and used for payments or value storage.

The Financial Stability Board (FSB) of the G20 set out Tuesday 10 recommendations for a common, international approach to regulating stablecoins, prompted by social media giant Facebook proposing its stablecoin Libra.

They should be faced with the same rules as other companies presenting the same risks, regardless of the technology used, it said.

Existing financial rules, such as payments and customer checks, generally apply to stablecoins in whole or in part and address at least some of the risks that they generate, the FSB said.

However, coverage can be patchy from country to country, exposing gaps to oversee a cross-border stablecoin, the FSB has said.

The recommendations suggest flexible, cross-border cooperation to prevent a stablecoin from playing off one jurisdiction over another.

"Where necessary, relevant authorities should clarify regulatory powers and address potential gaps in their domestic frameworks in order to adequately address the risks posed by global stablecoins," the FSB stated.

Stablecoin operators have to manage risks effectively, be operationally resilient, have cyber-attack safeguards and stop money laundering and terrorist financing systems, it said.

Several of Libra's major supporters, including Visa, Mastercard and PayPal, have since dropped out following skepticism from regulators and central banks, saying it should not be launched until adequate rules are in place.

The potentially enormous reach of Facebook in cross-border payments would make it an instant, systemic rival to traditional currencies, central banks said

Last month, the company said it was still planning to offer the Libra token but also worked on digital versions of government-backed currencies.

The Swiss-based Libra, which will issue and administer the digital currency, has said it welcomes the regulatory scrutiny. It declined to further comment.

Central banks are also looking into the possibility of issuing their own digital currencies as cash utilization declines for payments. The threat posed by Libra's potential launch to their control over money has been a big factor in accelerating research efforts.

Existing stablecoins, many of which are available worldwide, are still small in scale and pose no risk to financial stability, but this could change if the use increased significantly, the FSB said.

The biggest, Tether, with a market capitalization of around $6.3 billion, it still represents a fraction of bitcoin's size. It is little utilized beyond the cryptocurrency trading world.

Public consultation of the FSB is open until July 15, with a final report released in October.