Stablecoins, even if properly designed and regulated, will incur operational, liquidity, and settlement risks – and potentially to a “greater degree” than traditional payment systems, writes a recently released report by the Bank for International Settlements’ (BIS) Committee on Payments and Market Infrastructures (CPMI). However, with the right jurisdictions and international standards, the committee believes that stablecoins could become “a viable payment option for enhancing cross-border payments”.
The report identifies improved speed and transparency, as well as lowered costs of cross-border payments as some of the benefits of using stablecoins, but what’s keeping it from widespread adoption are divergent policy approaches.
“Some jurisdictions have made it clear that they will not accept stablecoins because of potential risks to monetary sovereignty, financial stability and seigniorage income; others choose to regulate stablecoins to address these risks, acknowledging potential roles that stablecoins and their underlying technology could play in future payment ecosystems in their jurisdictions,” states CPMI in a press release announcing the publication of the report. As of now, “no stablecoin arrangements (SAs) yet exist that are deemed to be properly designed and regulated and fully compliant with all relevant regulatory requirements”.
Cooperation is necessary
In order to ensure that the drawbacks do not outweigh the abovementioned potential benefits, “the regulation, supervision and oversight of SAs alone may not be sufficient”. CPMI suggests that “other private or public sector efforts, such as improvements in existing payment infrastructures or the development of central bank digital currencies (CBDCs) may be explored”.
In addition, “cross-border alignment of domestic regulatory frameworks and global standards are necessary”. Otherwise, effective use of SAs would never be able to occur across jurisdictions and instead, will be limited to only within certain jurisdictions.
In conclusion, ”strongly-coordinated efforts at the international level are needed to avoid regulatory arbitrage while allowing for sufficient flexibility such that jurisdictional-specific risks and concerns are addressed”.