Pablo Hernández de Cos sees 6 areas in which banks could be affected by stablecoins. The executive believes that cryptocurrencies cause growing concerns about financial instability.

The governor of the Bank of Spain and Chairman of the Basel Committee on Banking Supervision, Pablo Hernández de Cos, said on Tuesday, November 19th, at a meeting in Frankfurt, Germany, that banks could face up to six financial and non-financial risks if they decide to relate to stablecoins and proposals like Libra.

The Spanish financial executive noted that stablecoin initiatives prevail in the private sector and he cited, as an example, that of the Libra Association, a project led by Facebook that includes the participation of 22 companies from Europe and America.

In a hypothetical scenario, Hernández de Cos stated that banks could act as custodians of the assets that support stablecoins or manage those assets. They could also facilitate the operation of the stablecoin through resale and offer digital wallet services. However, this participation would entail potential risks for the banking system.

According to their function, banks could be subject to a wide range of financial risks (liquidity, market and credit risks) and non-financial risks (such as cybersecurity and data integrity or legal risks, among others), explained the Governor of the Bank of Spain during his presentation.

Income Reduction

Another aspect that was highlighted by the Spanish financial executive was that the business models of banks would be impacted by stablecoins. In other words, if users have the power to make transfers or payments without requiring the services of banks, these would not get any commissions for those transactions.

Hernández de Cos added that the emergence of stablecoins as a source of instant payments would compete for transfer commissions, which could dilute the flow of income on the basis of bank commissions.

In the event that banks became part of stablecoin ecosystem, they could face other difficulties in offering innovative products and services, something that startups, FinTech ventures and large technology companies already offer, stressed the governor of the Bank of Spain.

In the middle of this potentially adverse scenario for banks, the executive also noted that the Basel Committee on Banking Supervision considers that there is a continuous growth of platforms for the exchange of cryptocurrencies and related financial services, which translates into new concerns about potential financial instability, according to his criteria.

Volatility and Markets

Stablecoins have gained in popularity in the cryptocurrency ecosystem in recent years as they combine the characteristics of national currencies, to which they are related, and that of cryptocurrencies. Their main quality is that they eliminate the traditional volatility of the crypto market, but they maintain the low cost per transfer and a global reach.

There are three types of stablecoins: those that are supported by fiat currencies or products with a 1:1 parity with the US dollar, for example. In this group are Tether, TrueUSD, USD Coin and Digix Gold.

In the second group are those stablecoins that are collateralized with other cryptocurrencies with a 1:2 parity, for example, to minimize their volatility. Among them are Dai and BitUSD. In the third group are stable non-collateralized tokens that rely on smart contracts to decrease or increase the issuance of funds on the network, such as Basis or NuBits.

By Willmen Blanco


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