Stablecoins like Libra are the riskiest for the Bank for International Settlements. The body views the European Union’s draft to regulate stablecoins.

The Bank for International Settlements (BIS) proposes the use of dynamic regulation tools that facilitate the constant supervision of anchored cryptocurrencies or stablecoins.

Ending November, in a report titled “Stablecoins: Risks, Potential and Regulation,” the BIS notes that the novelty of Facebook’s Libra project, and other global stablecoins, requires regulators to reinvent the possibilities of monitoring and overseeing the issuance and circulation of this type of cryptocurrency.

Therefore, there is a proposal mentioning that the starting point for regulating stablecoins should start with a registration or a licensing regime that allows information on projects to continuosly monitor companies.

“Information is a central function of regulation, both from the point of view of improving the functioning and efficiency of the market and from the point of view of supervision”, the study concludes.

This monitoring process should make the provision of direct and automated data a registration requirement for all potential stablecoin issuers.

Here they would highlight projects that use blockchain technology by generating secure information, supporting automated monitoring, and enabling verification of compliance. According to the BIS, this would launch the concept of “integrated supervision”.

In the opinion of the agency, as data collection is only useful in the jurisdiction where the establishment of the project is, it is also essential to combine this action with cross-border exchange agreements. For analysts, this is an indispensable procedure, taking into account that “the risks that stablecoins represent for financial stability” can develop without observation.

“There is the potential that a limited-purpose pegged currency could rapidly evolve into a stablecoin”, the report notes. Consequently, the most appropriate regulatory approach would set its concept on a different treatment, depending on the structure or scale of the project.

The BIS refers to the draft stablecoin regulation that the European Union (EU) proposed last September, which it considers to be the most complete to date.

The EU document raises the requirement of different requirements for utility tokens (non-stable currencies), financial instruments (including bitcoin), asset-backed stablecoins, and significant or global stablecoins. In this way, the most ambitious projects, which exceed certain thresholds, would have a higher level of demand. Citing the work of the EU, the report refers to other efforts around the world to address the regulation of anchored cryptocurrencies.

The international body’s position differs about central bank digital currencies (CBDC), which “would not represent the same conflicts of interest as stablecoins.” These conflicts are linked to the stabilization mechanisms of the price of the currency and the assets that serve as support.

By Jenson Nunez

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