The G7considers the focus of the Libra project to be placed on the lack of international coordination. The G7 believes that Bitcoin has failed to be an attractive payment method.
Bitcoin and other initial cryptocurrencies have failed to be an “attractive method of payment or value storage,” according to a new report by the G7 and the Bank for International Settlements (BIS).
However, in the October G7 report, it is argued that cryptocurrencies whose prices are pegged to other assets, or stablecoins, such as Libra, pose a growing threat to monetary policies, financial stability and competition.
The widely adopted stablecoins to which it has been referred as “global stablecoins” have the potential to reach an international audience and have “significant adverse effects” on the current economic system, according to what the G7 report argues.
Meanwhile, first-generation cryptocurrencies such as Bitcoin have suffered from high price volatility, limits on scalability, complicated user interfaces and issues concerning governance and regulation, among other challenges. Consequently, cryptocurrencies have functioned more as a highly speculative asset class for certain investors and for those linked to illicit activity, rather than as a means to make payments.
The G7 report adds that the taxonomy of stablecoins (defined as an equivalent of money, contractual property rights, or rights against the issuer of an asset) will continue to be a prominent legal issue for some time. The effects of stable currencies on established monetary systems, such as electronic bank transfers, have not yet been fully understood.
Stablecoins might offer faster, cheaper and more inclusive payments, but only on the condition that a significant amount of risk is assumed, as warned by the G7.
On a footnote, the G7 report states that the management of the Libra Association by the Swiss Financial Markets Supervisory Authority (FINMA), which falls under the range of regulatory action in Geneva, is in agreement with the recommendations on stablecoins made by the G7.
The FINMA recently said that Libra focuses on the need for international coordination and “appropriate prudential requirements” for all services offered over those of a payment system.
The report on stablecoins was prepared at a request of the G7 in July, shortly after the launch of Libra in June. Although it was obviously largely directed at the project, the report only mentions Libra in a footnote.
In response to the G7, the Libra Association sent a memo on Friday, October 11th, stating that the stablecoin “has no intention of changing the role and the influence of Central Banks.”
Then it added that wallets and other financial systems operating in the Libra network (including exchange houses and entry and exit ramps) will have to comply with regulations, as well as with local capital controls, which can be adjusted to prevent large amounts of local currency from passing to Libra in emerging markets.
Investors should learn about what happens in the world of cryptocurrencies in order to learn how to make the best decisions. One way to do so is through articles in which they can read what experts like those from the G7 explain about the evolution of the market of cryptocurrencies.
By Willmen Blanco