The investigation determined that the global economy would be at risk if a global stablecoin fails.
The European Central Bank (ECB) recently released a report revealing an investigation to determine the impact of stablecoins on the global economy. ECB’s conclusions reveal that it could be risky to implement a global system based on stablecoin; this is because if the system suffers failures, the consequences for the economy would be high.
The economic instability that would arise due to a failure in the support systems of the digital currency, would put the established economic markets at risk. The document expresses the alert for the assumption of determining the use of a single stablecoin for the world.
Matteo Cominetta, Christoph Kaufmann, Mitsutoshi Adachi, and Anton van der Kraaij were the researches who conducted the study and titled the work as “A regulatory and financial stability perspective on global stablecoins”. The objective of this project was to determine the risks in the adoption of this technology and its implications in the world economy.
When concluding the research, the authors determined that, although this technology could establish fast and low-cost payment systems, adopting it could bring great challenges in the future.
The study contemplated different examples to know what could occur after systems like these are established. In this sense, the researchers evaluated Facebook’s Libra project and the processes it conducts for the activation and operation of the digital currency.
“If a stablecoin arrangement reaches a global scale, its malfunctioning could pose risks to the financial system. The asset management function of a global stablecoin arrangement could be similar in substance to a global money market fund whose shares are held by retail users (…) To reap their potential benefits without undermining financial stability, we must ensure that stablecoin arrangements do not operate in a regulatory vacuum”, the study says.
According to the research, the European Central Bank approves the use of stablecoins. However, the bank highlights that it is necessary to improve the regulatory systems that govern electronic money, as well as the scope of operations, technological specifications, and basic legal details to adapt to the current economic system.
Besides, the financial institution also determined that regulatory systems should not cover other similar technological projects as a preventive measure. This is because, if the global stablecoin fails, the impact would be less as there are fewer projects that the legal system supports.
Libra Generates Alarm in the World
Governments and international regulatory bodies have spoken, more than once, against the implementation of a single global currency as an asset. Libra, the digital currency that Facebook is preparing, would be able to make exchanges regardless of the country. It will not need to be covered by banking institutions. This situation has turned on the alarms worldwide regarding the possible use of this type of technology.
Although the Libra project is still ongoing, Mark Zuckerberg, CEO of Facebook commented, during a hearing before the United States Congress, that conducting this project was a high risk, but that they would not operate Libra if regulatory agencies do not allow it.
The community considers Libra as a stablecoin that anyone can use to make cross-border payments, using some electronic means. This is something that could be positive for some users but, at the same time, somewhat worrying for the authorities.
By María Rodríguez