FSB Tackles Stablecoin Risks in Emerging Markets

The Financial Stability Board (FSB) is taking a closer look at stablecoin use in emerging markets.

The watchdog group made that announcement following a meeting of the board’s plenary in Toronto.

“In emerging market and developing economies (EMDEs), crypto-assets pose particular challenges for monetary policy and capital flow management,” the board said.

“Members discussed the challenges posed by the relatively higher levels of adoption and risks of global stablecoin arrangements in EMDEs. The FSB will undertake further work to consider how these challenges can be addressed.”

Reporting on stablecoin regulation efforts last week, PYMNTS wrote that the digital assets “sit at the center of the crypto sector’s goals for a return to form.”

That’s because these assets, designed to maintain a stable value by being pegged to a reserve asset such as a fiat currency or a commodity like gold, aim to offer the benefits of cryptocurrencies — such as security, privacy and quick transaction times — while minimizing price volatility.

The end of this month will bring the implementation of the European Union’s landmark Markets in Crypto-Assets Act (MiCA) stablecoin regulations, part of the EU’s larger strategy to bring clarity and security to the crypto-assets market. It aims to protect consumers, bolster financial stability and fuel innovation within the digital currency space.

“By establishing clear guidelines for the operation of stablecoins, MiCA seeks to mitigate the risks associated with these digital assets, such as volatility and potential market manipulation,” PYMNTS wrote.

“At the same time, the MiCA implementation is occurring against a backdrop where, to date, most government oversight of stablecoins and the crypto sector has been relatively theoretical.”

Meanwhile, the recent PYMNTS Intelligence report “Can Blockchain Solve the Cross-Border Payments Puzzle?” argued that integrating stablecoins into a business’s payment system can give cross-border customers a fast, dependable and cost-effective alternative to traditional payment rails. Stablecoins can speed transactions and reduce currency-exchange risks, making them an attractive option for international transactions.

Also last week, the FSB said it would continue to monitor the implementation of the crypto regulations it introduced last year, both in its jurisdictions and beyond.

“Given the particularly acute risk of regulatory arbitrage in the crypto space, broad global implementation is crucial,” the board said.