G7 sees stablecoins as a threat to global financial system
Draft report outlines concerns with digital currencies
The G7 is to outline nine major concerns posed by digital currencies, in particular the growth of stablecoins.
A report seen by the BBC will emphasise the need to protect customers and ensure new digital currencies cannot be used to launder money or fund terrorism.
It will also voice its concerns with global stablecoins with the potential to "scale rapidly,'' a reference to Facebook’s Libra project.
The Libra coin in itself is not as disruptive as cryptocurrencies such as Bitcoin (BTC) as it is pegged to established currencies such as the dollar (USD) and the euro (EUR). However, because Facebook has a user base of almost 2 billion people, a rapid rollout of an alternative method of exchange across national borders would greatly threaten existing states.
Libra is not the only stablecoin on the horizon. JP Morgan (JPM) is set to launch its own JPM Coin, backed by the US dollar.
The draft report states that: “No stablecoin project should begin operation until the legal, regulatory and oversight challenges and risks are adequately addressed.''
Perhaps concerned with the potential threat posed by new stablecoins, governments and state institutions themselves are increasingly interested in developing their own digital currencies. In a joint statement last month, the French and German finance ministers vowed to block Libra in Europe and later endorsed the ECB’s plan to develop a digital euro.
The G7 is not the only institution investigating the potential impact of stablecoins. In a letter to G20 finance ministers and central bank governors, Randal Quarles, the chair of the Financial Stability Board observed: “The introduction of “global stablecoins” could pose a host of challenges to the regulatory community, not least because they have the potential to become systemically important, including through the substitution of domestic currencies.”