Stablecoin News for week ending Tuesday 21 April 2020

Is Regulation a necessary barrier to Innovation?

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Here is our pick of the 3 most important Domain news stories during the Period:

The big news of the week was the release of Facebook’s Libra revised whitepaper

In it they have significantly wound back the innovation levels to satisfy Regulatory concerns.  Is this good? Are Regulators just being cautious  because of the sheer scale that Facebook/Libra will operate at?  Would Regulators be proportionate with a normal start-up that starts small and develops over time be able to innovate freely or are they at risk of retrospective action?

Clearly some politicians and regulators believe that innovation and money should never be seen even in the same room.  Or if it does it should be the state that does all the innovating. Is that even possible? Well we are about to find out as the People’s Bank of China (PBOK) this week made good on the tantalising snippets and puffs of white smoke we have been seeing and announced their MVP is preparing for it’s first trail run.

The other interesting geopolitical point is that we are clearly seeing some coordination happening.  Out of the ashes of the 2008 Financial crisis the G20 established the Financial Stability Board (FSB) to promote the reform of international financial regulation and supervision. The differences in State approach are highlighted in the table from the Bloomberg article linked below which outlines the PBoC approach and progress.

The week began with the FSB outlining it’s position and requesting feedback 

Addressing the regulatory, supervisory and oversight challenges raised by “global stablecoin” arrangements: Consultative document

The FSB’s recommendations call for regulation, supervision and oversight that is proportionate to the risks, and stress the need for flexible, efficient, inclusive, and multi-sectoral cross-border cooperation, coordination and information sharing that take into account the evolution of “global stablecoin” arrangements and the risks they may pose over time. They apply the principle of ‘same business – same risks – same rules’, independent of the underlying technology.

Responses to this consultative document should be sent to fsb@fsb.org by Wednesday 15 July 2020.  So set your clocks, soon after this date projects will start delivering (Libra says it’s on track to be live and licenced by December).

  1.  G20 sets ground rules ahead of Facebook’s Libra stablecoin  The world’s leading economies need to plug gaps in their rulebooks to avoid digital currencies like Facebook’s planned Libra stablecoin from undermining financial stability, the Group of 20 Economies’ (G20) regulatory watchdog (FSB).  Read here from Reuters 
  2. China’s Central Bank to Run Simulations of Digital Currency Use.  PBOC has given the green light for some commercial lenders to run trials of its digital currency, according to people familiar with the matter, bringing it a step closer to becoming the world’s first major monetary authority to issue its own digital tender.  Read here in Bloomberg 
  3. Demand for Stablecoins has increased dramatically.  The big thing on Wall Street after the last 30 days, is that everyone is overweight in cash.  They have sold heavily and now are looking to selectively re-enter the market. Crypto has done the same and maybe with some of that same money (don’t know but we will see).  That fits our hypotheses that stablecoins are not a competitor to Crypto but a necessary add-on allowing people to sit on the sidelines for a while before re-entering the market. This article from Coindesk explores the topic further: Money Reimagined: Stablecoin Demand Foreshadows Financial Disruption

So this week, many questions, some answers, but it is also clear the train will soon be leaving the station.  Hopefully, you have found something interesting, new and of value in this weekly summary. In the meantime, stay safe and sane!  

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