Stablecoins would have to comply with the same safeguards. This is because their more traditional competitors in payments under proposals from regulators, as authorities get to grips with a rapidly evolving sector. Stablecoins are cryptocurrencies, that are designed to have a stable value relative to traditional currencies. This is to avoid the volatility that makes bitcoin and other digital tokens impractical for most commerce.
Facebook’s move in 2019 to introduce its own stablecoin Diem, called Libra, raised concerns among governments and central banks. The concerns are such as a major payments competitor could emerge overnight with little regulation. Since then, Diem has radically scaled back its ambitions. They are planning to launch a U.S. dollar stablecoin.
The IOSCO group of securities regulators and the Bank for International Settlements, a global forum for central banks, set out how current rules for major clearing, settlement and payments services should also be applied to systemic or heavily used stablecoins. The rules mean a stablecoin operator must set up a legal entity. Though still little-used for commerce, the use of stablecoins in crypto trading has grown rapidly.
Tether is the largest stablecoin. It has a market capitalisation of around $68 billion. The value of circulating USD Coin, another major stablecoin, has also jumped dramatically to over $30 billion. Countries that allow stablecoins to operate would be required to apply the principles as part of their affiliation to IOSCO and the BIS. IOSCO Chair Ashley Alder said in a statement that this report marks significant progress in understanding the implications of stablecoin arrangements for the financial system and providing clear and practical guidance on the standards they need to meet to maintain its integrity. The proposals do not cover issues specific to stablecoins pegged to a basket of fiat currencies.