FSB Warns of Stablecoin Risks for Emerging Economies

The adoption of global stablecoins in emerging economies entails significant financial risks and regulatory challenges, according to a report by the FSB under the G20.

Analysts highlighted the growing popularity of “stablecoins” in these countries, citing limited access to banking services, large remittance flows from developed nations, and the volatility of national currencies as reasons.

“The collapse and depegging of some stablecoins following the onset of cryptocurrency market turmoil in 2022 underscores the potential fragility of assets that are not properly designed and regulated,” the report states.

The instability of tokens poses significant risks for emerging economies, where oversight capabilities are often limited, the specialists emphasized.

Experts listed several key issues associated with the implementation of stablecoins:

• increased potential for illicit financing;
• data privacy concerns;
• cybersecurity risks;
• threats to financial integrity;
• the need to enhance consumer and investor protection.

Stablecoins can also disrupt market integrity, fiscal, and overall macroeconomic stability.

The mentioned risks are global in nature. However, emerging economies are most vulnerable due to barriers to implementing effective regulatory measures.

The report’s authors recommend that policymakers and supervisory bodies establish a robust legal framework to facilitate cross-border cooperation. They also advised enhancing local capabilities for regulating “stablecoins.”

Earlier, Paxos introduced the stablecoin Lift Dollar, which offers holders “risk-free” yields of around 5%. The first market will be Argentina, known for chronic currency devaluation and high inflation.

Back in July 2023, the FSB developed recommendations for a global regulatory framework for digital assets. Later, G20 member countries approved the proposals.