Washington, Oct 17 (AFP) Oct 17, 2019 : Facebook's proposed digital currency must have legal and regulatory issues worked out in key economies before it can be put into use, the Group of Seven economies said Thursday.
In a new report on stablecoins -- a type of digital currency backed by reserves assets -- the G7 also urged regulators to coordinate their work to prevent issuers from seeking out the most favorable country from which to operate.
"For stablecoin developers, a sound legal basis in all relevant jurisdictions... is an absolute prerequisite," according to the report from the G7 working group led by Benoit Coeure, a European Central Bank board member.
Facebook's Libra has generated intense scrutiny from officials worldwide who worry about the impact it could have on the financial system.
France's Economy Minister Bruno Le Maire is due to hold a news conference to discuss the report's findings.
Digital currencies are ripe for use by terrorist organizations or for money laundering, so developers must have "legal clarity" about "all participants in the stablecoin ecosystem, such as coin holders and issuers," the report said.
They also pose other challenges to the financial system and to banks, if they are adopted widely.
"Ambiguous rights and obligations could make the stablecoin arrangement vulnerable to loss of confidence -- an unacceptable risk, especially in a payment system of potentially global importance," the report said.
The G7 called said national regulators "must coordinate across agencies, sectors and jurisdictions," to address the risks and "forestall harmful regulatory arbitrage."
"These risks, which are of a systemic nature, merit careful monitoring and further study," the report said.
Amid sharp regulatory scrutiny, the 21 firms backing Libra pledged on Monday to forge ahead with the project, shrugging off the defection of a quarter of its original members, including payments giants Visa and Mastercard, this month.
STABLECOINS AND PAYMENTS
In June, Facebook (FB.O) unveiled its Libra coin, a form of stablecoin backed by currencies from the dollar to the euro and government debt, in one of the most high-profile attempts to draw cryptocurrencies into the banking and corporate establishment their creators sought to subvert.
Stablecoins aim to overcome the extreme volatility that plagues cryptocurrencies and renders them impractical for commerce and payments.
Yet Libra drew immediate and sustained criticism. Policymakers voiced concerns about its potential to destabilize the global financial system and erode the power of countries to control monetary policy. Others said it could undermine users’ privacy.
The G7 report said authorities should apply to stablecoins existing rules on payments and anti-money laundering, as well as capital market and banking standards.
It added that new rules may be needed to deal with the emerging technology, with the Financial Stability Board - a body created after the 2008 financial crisis - assessing related regulatory issues before reporting to the Group of 20 wealthy nations in April.
Stablecoins had before Libra attracted virtually no attention from global policymakers, partly because of their relatively tiny size. The biggest, Tether, is only a fraction of the size of bitcoin, the No.1 cryptocurrency.
Facebook says Libra is designed to address inefficiencies in the global payments system, which is beset by high fees, lengthy transfer times and a lack of reliability. That hinders, and in many cases prevents, people from making cross-border payments, especially in developing countries.
The G7 said central banks, finance ministries and other authorities should work to address these weaknesses in payments systems. The public sector, it said, should step up efforts to bring people lacking access to banking services into the financial system.
It added that central banks, by themselves and in cooperation with one another, should look at issuing their own digital currencies.
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