Why it matters: The G20 Financial Stability Board believes that cryptocurrencies like Facebook's Libra are a risky proposition that requires an appropriate response in the form of comprehensive regulation, oversight, and holding those who operate stablecoin networks to a high standard of accountability. What it really means is that people are flocking to these financial instruments faster than governments and central banks can adapt to their existence.
Governments and central banks have learned one lesson from the Internet - letting a decentralized system evolve organically could spell trouble for centralized forms of power - unless they step in to change the rules.
Cryptocurrencies have been around for years, but their highly speculative nature and limited use cases have kept many people on the fence about using them to reliably store any meaningful value. More recently, stablecoins - a form of cryptocurrency whose value is pegged to fiat currency - are gaining ground so quickly that the richest countries in the world want to slow their development until they can figure a way to get in the game.
The G20's Financial Stability Board has published a document where it outlines 10 recommendations for governments and central banks on how to adapt to this new trend. The 67-page report argues that because stablecoins work across borders, countries should coordinate their regulatory efforts as a safeguard against abusing one jurisdiction's legal gaps as a way to undermine the sovereignty of another.
The FSB doesn't mention Libra by name, but most of the concerns around Facebook's cryptocurrency project are echoed in the report - namely, that stablecoins present the risk of breaking things without a clear chain of accountability and could harbor money laundering and fraudulent activities.
Governments and central banks are encouraged to ban cryptocurrencies that are operating in a legal gray zone and can't be regulated. The FSB also believes that global stablecoin arrangements (GSC) should be able to offer G20 authorities "timely and unobstructed access to relevant data and information" on users and transactions.
The problem is that while the FSB's recommendations can be implemented for traditional banking institutions, they're nearly impossible to implement on cryptocurrencies. The nature of these systems is that they're decentralized, meaning that companies like Tether, Binance, and Circle are only able to issue stablecoins but not supervise them or control the way they're used.
One thing is clear - governments and central banks aren't happy with stablecoins as they work today and this is why they've pressured many of Libra's backers into abandoning the project. The FSB noted in its report that "such instruments may have the potential to pose systemic risks to the financial system and significant risks to the real economy, including through the substitution of domestic currencies."