The inception of cryptocurrency and its use as a means of payment has been met with stringent regulatory requirements, with global financial regulators composing different laws for crypto-related firms to abide by, including Know-Your-Customer (KYC) rule and the most recent Travel rule.
However, the International Monetary Fund (IMF) is more concerned about stablecoins and its underlying impact on the traditional financial system.
In a blog post by the IMF today, the financial organization examines the possible ways financial regulators can curb the risk associated with stablecoins.
According to the IMF, since stablecoins are designed to have minimal price volatility relative to fiat, there is a likelihood that if widely accepted as a means of payment, many users would prefer them over fiat currencies.
Per the post, concerns over the legitimacy of the assets backing this set of cryptocurrencies were raised by the IMF. The organization questioned the stability of these stablecoins and whether stablecoin users are indeed getting the same value of the stablecoin they possess in the fiat currency that backs the token.
Central Banks and Stablecoin Issuers Partnership
In order to curb any future risk on the value of stablecoin, the IMF has proposed various approaches which center on global central banks’ partnership with stablecoin providers, thus giving them access to central bank reserves.
One of the regulatory proposals of the IMF is the use of “synthetic Central Bank Digital Currency (sCBDC),” which would require private stablecoin issuers to make an exact deposit of the fiat backing the stablecoin at central banks.
“This synthetic central bank digital currency or “sCBDC” for short—offers significant advantages over its full-fledged cousin, which requires getting involved in many of the steps of the payments chain,” part of the post reads.
Another approach to ensure the stability of stablecoin is for financial regulators to require private stablecoin providers to back their tokens with central bank reserves fully. This method is considered to be the safest by the IMF.
Even though this method seems to be adopted by the People’s Bank of China (PBOC), which earlier requested payment providers AliPay and WeChat Pay to do so, the IMF believes global adoption of this technique would go a long way to help the public see stablecoins as a store of value.
The IMF has always been a strong supporter of the cryptocurrency and blockchain industry, with the organization affirming its support for the industry in November last year.
In April, the IMF partnered with the World Bank to launch a non-monetary value crypto token called “Learning Coin,” to help their staffs understand how the blockchain technology works.