BIS Says CBDCs Likely Better than Private Stablecoins Like Libra

The Bank for International Settlements is the latest major financial organization looking to implement industry-standard regulations in the stablecoins arena. Meanwhile, several nations are also working towards creating their own central bank digital currencies (CBDCs) which are seen by some commentators as being driven by private stablecoin projects like Facebook’s Libra.

CBDCs Might Be Superior to Stablecoins

In a paper published on Tuesday (November 24, 2020), a group of economists working with the BIS argued for the superiority of CBDCs over private and decentralized stablecoins. As part of the abstract for the report, the analysts declared:

“It is an open question whether central bank digital currencies (CBDCs) and other initiatives could in fact provide more effective solutions to fulfill the functions that stablecoins are meant to address.”

Indeed, Facebook announcing the Libra project back in mid-2019 seemed to kick-off a veritable CBDC storm across the globe. Over the next 18 months, different countries have declared their intentions to either create or test experimental central bank digital currencies.

For the BIS, CBDCs offer more advantages over stablecoins since the former are backed by central banks. According to the report, sovereign digital currencies will not suffer the same conflicts of interest associated with asset backing and stabilization mechanisms for private decentralized stablecoins.

Stablecoins Need Robust Regulations

Concerning stablecoins, the BIS report called for effective regulations, adding:

“We argue that the regulatory responses to global stablecoins should take into account this difference. The response to global stablecoins should address the potential for other stablecoin uses, such as embedding a robust monetary instrument into digital environments, especially in the context of decentralized systems. Looking forward, in such cases, stablecoins may allow for embedded supervision.”

The report further went on to state that the effectiveness of such supervision might lie at the intersection of CBDCs and existing remittance services like fast payment rails.

Apart from the BIS, several other major financial watchdogs are shining the regulatory spotlight on stablecoins. As previously reported by BTCManager, authorities in the UK are set to create a legal framework for stablecoins as part of the post-Brexit financial management overhaul in the country.

New crypto regulations in the EU may even make issuing stablecoins in the region an even more difficult proposition. Back in April, the Financial Stability Board (FSB) called for a streamlined approach to stablecoin regulations across the G20 member countries.