Last week, financial leaders of the world’s seven biggest economies stated their opposition to the launch of global stablecoin projects until a proper regulatory framework is in place.
A draft G7 statement said: “The G7 continues to maintain that no global stablecoin project should begin operation until it adequately addresses relevant legal, regulatory, and oversight requirements through appropriate design and by adhering to applicable standards.”
While the G7’s statement refers to ‘global stablecoin projects,’ in this case it is clearly code for Facebook’s Libra project. It’s no surprise to hear more regulatory opposition to Libra, as regulators have been clear on their stance since day one. France’s economic and finance minister Bruno Le Maire even went as far as to say Libra was “unacceptable”, calling it an intrusion into the state’s political sovereignty.
But amidst all the noise around Libra, we must not lose sight of the nuance in the G7 statement when it comes to single-currency stablecoins and central-bank digital currencies, or CBDCs.
Reading between the lines, the implication by the G7 is that regulators would be open to stablecoins that can fit within one regulatory and monetary policy regime. In this regard, the statement is a positive development for CBDCs and also for well-crafted single currency stablecoins that can launch via regulated entities.
Stablecoins are slowly being recognised as a token type that can co-exist with CBDCs once the correct regulatory landscape is in place. Libra’s biggest barrier to launching has been its underestimation of the multi-jurisdiction regulatory challenge and its lack of collaboration with the global regulatory community in general.
We have long argued that public-private partnerships are the best vehicle to get a digital asset off the ground. Private firms like Facebook must work with governments, central banks and the relevant authorities, and likewise public bodies can leverage much of the technology development that has already been carried out by private entities. Countries like Switzerland provide a great example of where the public and private sector can work together on this, with its SDX digital exchange.
In reality, Libra has done little, if anything, to seriously address the calls from regulators following its announcement. Its shift earlier this year into offering Libra pounds, dollars, euros, Singapore dollars, as well as Libra Pure implied that they acknowledged the concerns of the big central banks but had not addressed the issues in other jurisdictions.
Another major barrier is that big tech companies come to the stablecoin space with lots of baggage – for instance, they need to explain how they will handle data transaction privacy to guarantee that payments data doesn’t just become another offering in their business model. As always, they offer convenience at a price and regulators have rightly moved to protect consumers and the system.
Ultimately, we believe that blockchain technology and properly regulated digital assets will produce a payments landscape where risk is hugely reduced, if not removed entirely. Libra’s failure to date is a reflection of its cavalier approach in a rightly heavily regulated space, and seemingly a lack of awareness – or a disregard – of the complexity of meeting regulatory requirements in different jurisdictions.
Stablecoins must be regulated, but this will need to happen within individual regulatory frameworks before they can be rolled out on a global scale. We at least have Libra to thank for pushing regulators to set out the rules whilst these new assets are in their infancy.
Todd McDonald is co-founder and chief product officer of R3, a fintech that develops blockchain technology for banks