G20 financial regulators send letter to world leaders: need to closely follow stablecoins

Source: Reuters Authors: Marc Jones and Phoebe Seers Translator: Kaozai

The financial risk regulatory bodies of the G20 issued a warning to world leaders on the eve of the summit in South Africa: the rapid development of private credit markets and stablecoins deserves close monitoring.

In a letter to G20 leaders released on Thursday, Financial Stability Board (FSB) Chair Andrew Bailey called for a global effort to “modernise and strengthen” financial regulation without compromising financial stability.

The letter emphasized the growing role of non-bank financial intermediaries (including private credit markets) and stated that this will be one of the main priorities of the FSB next year.

The letter specifically emphasizes the “urgency” of improving cross-border payments and establishing a “robust framework” for stablecoins. Stablecoins are a type of cryptocurrency that is typically pegged to real-world currencies or assets like the US dollar at a 1:1 ratio.

Baily wrote in the letter: “The differences in regulatory and prudential frameworks among countries regarding (stablecoins) may add additional complexity and potential risks.”

“It is equally important to consider how stablecoins can operate effectively and securely across borders.”

News source: Reuters Authors: Marc Jones and Phoebe Seers Translator: Kǎo zǎi

Policymakers outside the United States are generally concerned that the widespread adoption of dollar-backed stablecoins could lead to a partial “dollarization” of their economies, thereby undermining their monetary policy power and creating tricky issues when rescue measures may be needed in the future.

Belly also pointed out in the letter that major economies have failed to implement global banking standards, including the Basel III Accord.

The Basel Committee on Banking Supervision reiterated on Wednesday that “fully and consistently” implementing stricter capital rules remains its “highest priority”.

The reform plans reached in 2017 were originally intended as a concluding effort to address the 2008 financial crisis, but both the European Commission and the UK have postponed the implementation of Basel III until 2027, waiting for a clear stance from the United States, which has previously expressed resistance to the plan.

Faced with pressure from various parties, the Basel Committee seems to be softening a specific aspect of its rules.

Erik Thedéen, Chairman of the Basel Committee, told the Financial Times on Wednesday that it is necessary to reassess the risk exposure requirements for crypto assets in light of the “sharp” rise of stablecoins since the rules were established three years ago.

The regulatory framework for this cryptocurrency asset was originally set to take effect on January 1, but as of now, neither the United States nor the United Kingdom has committed to adhering to this date.