'Same Activity, Same Regulation' For 'Global Stablecoins' - FSB Chair
Cross-border payment inefficiencies will be a problem for the post-pandemic economic recovery of certain regions, says Randal K. Quarles, the Chair of the Financial Stability Board (FSB) in a letter to the G20. But when it comes to a possible solution - "global stablecoins" - oversight is required as stated in the recommendations that are based on the 'same activity, same regulation' principle, he says.
The FSB Chair has issued a letter, discussing the current economic and financial issues related to the COVID-19 pandemic, but also the situation beyond the pandemic. To support the global recovery, as well as a resilient and efficient market system, the FSB, an international body that monitors and makes recommendations about the global financial system, has already made moves, says the Chair, by "strategically reprioritized its work for the current year."
The FSB will tackle inefficiencies in cross-border payments via a roadmap to enhance cross-border payments, the first stage of which is done, and it will continue its work on the next two stages. As reported, FSB will submit its report that provides an assessment of existing arrangements and challenges for global cross-border payments to G20 Finance Ministers and Central Bank Governors ahead of their virtual meeting on April 15. The report that, among other conclusions, finds that improvements to the operational aspects of cross-border payments could bring better efficiency and speed to the processing of these payments, is the first of three stages in developing a roadmap for cross-border payments.
The report analyses the potential risks of technological innovation, as well as the risks, cross-border challenges, and existing approaches by authorities in regards to "global stablecoin." The report "makes high-level recommendations for regulatory, supervisory and oversight responses, including multilateral actions," says Quarles, and adds: "In doing so, we apply the principle of ‘same activity, same risk, same rules’, independent of the underlying technology. We aim to address the risks, while preserving any benefits of these instruments."
Furthermore, the FSB has formed a group of market regulators and policymakers that will find a way to organize future work on "the increasingly important" nonbank financial intermediation (NBFI) sector, in order to understand the risks and policy implications, and to "reap the benefits" without compromising financial stability, the letter says.
The rest of the letter focuses more on the pandemic-caused crisis. Quarles argues that the financial system in the lead-up to the outbreak "has been stronger and more resilient than ever before," adding that "the initial wave of extreme volatility appears to have ebbed somewhat following substantial support from central banks in core markets," but that "markets remain under great strain and are still highly volatile and in some cases illiquid."
Battling the COVID-19 pandemic, the global financial system must respond to two, interconnected challenges, finds Quarles:
- an increased need for credit in the global economy, to bridge the period of highly restricted activity;
- uncertainty regarding the value of a wide range of assets, complicating the operation of markets and the intermediation of the heightened credit need.
As for the actions undertaken by the FSB and its member jurisdictions to tackle these issues and support the local and global markets, the Chair highlights:
- assessing vulnerabilities in the financial system via its diverse membership and providing risk assessments to policymakers;
- exchanging information among the members daily on their financial policy responses, resulting in about 850 discrete actions to address the pandemic-related financial and economic issues to date, and preventing market fragmentation;
- coordinating policy responses among FSB members and other standard-setting bodies (SSBs).
Meanwhile, as reported, in October 2019, the Group of Seven (G7) largest advanced economies instructed its members to compete with cryptocurrencies and stablecoins by improving the existing financial system – and consider issuing digital fiats.