G-7 and G-20 disagree over regulating stablecoins.
Global leaders are working together to create universal rules and standards for the crypto industry following its collapse last year. While they have agreed on most things, advanced economies in the Group of Seven (G-7) are more open to allowing and regulating stablecoins, which are tied to the value of other assets such as fiat currencies. On the other hand, emerging economies in the wider grouping G-20 are calling for tougher restrictions or even prohibitions on stablecoins, over concerns that widespread use could present a greater threat to monetary policy. Disagreements between the two bodies could potentially stall the acceptance of global norms for stablecoins, or threaten to fragment the unified oversight envisioned by financial regulators around the world. However, the officials involved in the discussions have stated that the Financial Stability Board (FSB) allows countries some flexibility in implementing the rules according to their varying needs.
The G-7 and the G-20 have committed to taking the lead on framing globally coordinated norms for crypto. The G-20 is made up of the G-7 jurisdictions, along with 13 others, including 10 emerging economies. Together, the two bodies are relying on global standard-setters such as the International Monetary Fund (IMF), the FSB, and the Financial Action Task Force (FATF) to make relevant recommendations and rules for the sector. While both groupings have vowed to implement FATF’s anti-money laundering rules for crypto, recent statements made by the forums have indicated differences in how they view the treatment of stablecoins.
The G-7 has said its nations will align with the FSB’s recommendations for stablecoins, which are focused on the impact of stablecoin use on wider financial stability. Meanwhile, the G-20 is looking to align with a more nuanced synthesis paper jointly produced by the IMF and the FSB expected between September and October.
The G-7 has pushed for tighter norms and signaled its commitment to implementing the FSB’s norms for regulating crypto assets and the IMF’s recommendations on central bank digital currencies (CBDCs). India, as G-20 president, used its agenda-setting power to bring in the IMF to lead consultations as the FSB was seen to align more with the U.S. India’s actions may reflect a desire to not alienate its old ally Russia following the invasion of Ukraine by allowing the FSB to shape critical financial policy. The FSB’s individual recommendations for regulating crypto and stablecoins are expected in July 2023.
The IMF-FSB synthesis paper is focused on analyzing the implications of crypto on monetary policy, capital flows, the international monetary system, and tax revenues,” stated Miyoshi.
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Concerns of Emerging Economies
Emerging economies are worried about stablecoins due to their possible impact on the effectiveness of monetary policy if widely used, according to Miyoshi. Monetary policies are measures established by a country’s central bank to manage the supply of money in the economy and achieve growth.
Miyoshi explained that “if, for example, USD-denominated stablecoins were introduced and began circulating in very small emerging markets, that could hurt the effectiveness of their monetary policy or make capital flows in those nations more volatile.” He added that it is unlikely that the dollar or euro could be replaced by a stablecoin if it circulated in G-7 jurisdictions, which include the United States, the United Kingdom, Canada, and Japan.
“But in developing economies where monetary policy or foreign exchange regimes are not robust, the risk of currency substitution exists,” Miyoshi said. If stablecoins become widespread in emerging economies, it could also impact the effectiveness of their tax collection and revenue, Miyoshi and the G-20 official said.
Miyoshi stated that the “international community will make the best efforts to agree on this,” indicating that the G-7 might agree to a compromise. “The concern of G-20 economies around stablecoins may be allayed by the FSB recommending comprehensive stablecoin regulations.”
However, it’s not clear whether that will be sufficient for certain emerging economies that may want to simply disallow any stablecoins.
The FSB and the IMF did not immediately respond to a request for comment.
Read More: The Big Issues of Stablecoin Issuance
Edited by Sandali Handagama.