The post FSB paper tackles stablecoin risks to emerging markets, developing economies appeared on BitcoinEthereumNews.com.

The Financial Stability Board (FSB), an international body that monitors and makes recommendations about the global financial system, released a paper on the risks posed by global stablecoins to emerging market and developing economies (EMDEs). It highlighted increased interest in U.S.-backed stablecoins in emerging markets and the potential dangers to those economies of non-domiciled coins. The paper, titled “Cross-border Regulatory and Supervisory Issues of Global Stablecoin Arrangements in EMDEs,” was published on July 23 and focused on what it refers to as global stablecoins (GSCs), which are stablecoins that could be widely used as a means of payment and/or store of value across multiple jurisdictions. The FSB argued that EMDEs may be exposed to macro-financial risks arising from using foreign currency pegged stablecoins, which can increase financial stability risks by destabilizing financial flows and straining fiscal resources. Prominent examples are the U.S.-dollar-pegged Tether (USDT) and Circle’s USDC, the two most widely circulated stablecoins globally; the latter is U.S.-domiciled, while the former claims to be decentralized (although Tether Limited, the entity behind the stablecoin, is technically owned by British Virgin Islands–based company iFinex Inc). “The collapse and de-peg of certain stablecoins since the outbreak of the crypto-asset market turmoil in 2022 highlights the potential fragility of stablecoins that are not adequately designed and regulated,” warned the FSB. This would appear to be a reference to the collapse of the Terra-Luna ecosystem in May 2022, when ‘stablecoin’ TerraUSD (UST) lost its peg to the dollar. On May 7, 2022, UST, which was supposed to be pegged to the U.S. dollar 1:1 via an algorithmic relationship with Terraform Lab‘s native Luna token, decoupled from its pegged asset after a rapid selloff on digital asset exchanges. By May 9, it had fallen from $1 to 35 cents. Meanwhile, Luna, which was meant to stabilize UST’s…

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Filed under: News - @ July 25, 2024 11:22 am