G7 report: Bitcoin has failed and stablecoin not free from risk
In a report published by G7 on stablecoin, the working group recognizes the challenges in cross-border payments which are slow, expensive and opaque. It finds crypto-assets such as Bitcoin, not a reliable alternative and attractive means of payment or store of value to replace the traditional payment system.
The reasons cited for this conclusion was mainly due to its high price volatile, scalability issue, complicated user interfaces, and issues in governance and regulation, among other challenges. “Thus, crypto assets have served more as a highly speculative asset class for certain investors and those engaged in illicit activities rather than as a means to make payments,” per the G7 stablecoin report.
On the other hand, the G7 working group finds stablecoin could solve challenges in traditional global payment arrangements but finds stablecoins are not completely free from risks and challenges. Therefore, the G7 believes that no stablecoin project should begin operation until they abide by the same requirements as traditional payment, clearing and settlement systems.
As per the G7 working group report, the stablecoin projects should address the following risk and challenges in their design:
- Legal certainty
- Sound governance, including the investment rules of the stability mechanism
- Money laundering, terrorist financing and other forms of illicit finance
- Safety, efficiency, and integrity of payment systems
- Cybersecurity and operational resilience
- Market integrity
- Data privacy, protection, and portability
- Consumer/investor protection
- Tax compliance
Moreover, stablecoins that reach global scale could pose additional challenges and risks to:
- Monetary policy
- Financial stability
- The international monetary system
- Fair competition
The Libra Association was quick to respond to the G7 stablecoin report saying that Libra is “committed to working with regulators to replicate the strong legal protections that exist for fiat currency,” adding, “Libra is being designed to respect national sovereignty over monetary policy in the digital space, not undermine it”.
