The group of the seven wealthiest nations of the world, the G7 has drafted a report on stablecoins, as reported by BBC. The draft report talks about how digital currencies pose different threats to the global financial system.
The report notes nine different sources of threat that big cryptocurrencies like the Libra cryptocurrency of Facebook can pose. These global tokens which are being invested in by many major corporations like JP Morgan are uncertain about the regulatory status. Thus, they are losing legitimacy in front of their investors.
For example, the backers of the Libra association, initially Visa and Mastercard, then Stripe, eBay and PayPal pulled out of the scheme, just before the board meeting of the Libra association to be held in Geneva.
Analysis of the G7 Draft Report
The BBC story states that this draft report perceives how an independent stablecoin can affect the power of reserve banks and governments by having a bearing on monetary policies that regulate the market during times of crisis.
This is in addition to how they think the proliferation in the number of global stablecoins will diffuse the competition among the other players in the sector, and indirectly lead to greater risk because if these tokens lose their value they can cause large scale financial distress. Even a letter to the G20 leaders from the Financial Stability Board also suggests the same.
Do Digital Currencies Only Have Demerits?
While the report clearly recommends the stalling of the release of global stablecoins until a standard global regulatory regime is not agreed upon by the global community of nations; it also acknowledges the efficiency of cryptocurrencies in delivering fast and easy transfer of money. It can, therefore, become a good way to increase financial access to the large unbanked population across the globe. This will not only lead to their access to credit but also easy low-cost remittance transfer and formalize a large part of their economic transaction. However, in the present situation, the prospect of having corporations run stablecoins delivering financial services to customers seems far from reality.