The Group of 20’s financial risk watchdog informed leaders ahead of their summit in South Africa that the surge in private credit markets and stablecoins calls for careful observation.
Its Financial Stability Board Chair, Andrew Bailey, urged international efforts to “modernize and strengthen” financial regulations without jeopardizing stability in a letter to the G20 leaders released on Thursday.
It emphasized the “urgency” of enhancing international payments and creating “robust frameworks” for stablecoins, which are cryptocurrency kinds that are 1:1 tied to a real-world asset or currency, typically the US dollar.
“Divergences in regulatory and prudential frameworks across jurisdictions (around stablecoins) could add an additional layer of complexity and potential risk,” the letter from Bailey stated.
“It will be equally important to consider how stablecoins can operate effectively and safely across borders.”
Outside of the US, policymakers fear that the widespread use of dollar-backed stablecoins may partially “dollarize” their economy, reducing their ability to implement monetary policy and raising concerns about bailouts should they ever be required.
Bailey also mentioned in his letter the major economies’ inability to adopt Basel III and other international banking norms.
The Basel Committee on Banking Supervision reaffirmed on Wednesday that its “highest priority” is still the “full and consistent” implementation of stricter capital regulations.
The European Commission and Britain have postponed the implementation of Basel 3.1 until 2027 as they await clarification from the United States, which has opposed the plans.
The reforms, which were agreed upon in 2017, were the last component of the post-financial crisis response.
Basel seems to be relaxing one of its regulations in reaction to the demand.
Erik Thedéen, the chair of the Basel Committee, told the Financial Times on Wednesday that the limits for crypto exposure needed to be reviewed to account for the “dramatic” increase in stablecoins since the rules were established three years ago.
Although neither the United States nor the United Kingdom agreed to that date, the crypto framework is scheduled to go into force on January 1.
