Global banking risk group warns of cryptocurrency threat
By Gregory Boyd
08:58, 7 October 2021
Cryptocurrency stablecoins are a threat to the global financial system, according to the working group tasked with defending against financial risks to the worldwide banking system.
But they’re working on it.
In a report published on Thursday morning, the Financial Stability Board (FSB) summed up the work of its members to come to grips with digital assets that mirror national currencies.
The FSB is a colloquium of central bankers and finance ministers of the G20, along with states with significant participation in the global financial system such as South Korea, Singapore, Hong Kong, Switzerland, the Netherlands and Mexico.
Fear of a GSC
The FSB report expressed concern that a stablecoin may make the leap from facilitating trading and certain cross-border transactions to taking over more of the role of leading national currencies, thereby becoming a “global stablecoin” or GSC. This would pose risks to global financial stability, the report said.
“The emergence of GSCs would pose greater risks to financial stability than existing stablecoins and may challenge the comprehensiveness and effectiveness of existing regulatory, supervisory and oversight approaches,” the report warned.
It added: “Increased participation by retail investors could give rise to broader financial stability issues through an erosion of trust in the financial system.”
In response, the FSB is seeking to co-ordinate the approaches of multiple national banking and securities regulators. The group promises to complete a review of the issue by July, 2022.
Stablecoin growth
Meanwhile, stablecoins are growing rapidly, the report said, having reached a combined value of about $123bn by September of this year.
The leading stablecoins, by market capitalisation, are Tether, USDC Coin and Binance USD, the report noted.
Stablecoins are designed to track national fiat currencies, but their architecture has come under scrutiny recently. For example, the USDC coin was originally advertised as being backed 1:1 by US dollars, when in fact it was backed by a mix of cash, Treasuries and other assets.
The most recent report published by Circle, the company promoting USDC, said that an audit in August found that 92% of the coin’s value was backed by cash and cash equivalents. In the report for May, only 61% of USDC’s value was backed by cash and cash equivalents, the rest being a mix of treasuries other more volatile assets.
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