Can Stablecoins Bring Financial Stabilization? See What US Federal Reserve Says

Stablecoins! Are they here to bring financial stabilization? Or, leaving us in the same state we are now? Details explained here! Keep reading and you’ll get to know…

The US Federal Reserve comes out with new findings of financial stability. Surprisingly, the US Federal Reserve is supporting the use of stablecoin wholeheartedly. Most of the stablecoins worldwide have the same value as one dollar. However, cryptocurrency such as Tether supports conventional assets. The Federal Reserve of the US generally doesn’t reveal the name they’re working with. But, now we see that Federal Reserve is openly talking with stablecoins which has a global presence nowadays.

Some experts from the cryptocurrency world feel that the key findings are optimistic. Because stablecoins provide a medium exchange alongside the conventional payment systems. But what makes the US Federal Reserve said that stablecoin can change the face of the economy worldwide. We guess it’s because existing financial institutions are excruciatingly sophisticated. And, accessibility is poor. In that case, stablecoins can become faster, cheaper and inclusive payments.  Besides, finance specialists also believe that stablecoin can turn itself as an ultimate solution for the volatility of cryptocurrency. Federal Reserve is well-aware of the potential of stablecoins. And thus, it may give rise to unintended consequences.

Stablecoins Should be Regulated Worldwide

The US Federal Reserve report states that stablecoins with poor design and available worldwide may increase the risk to financial stability. Moreover, stablecoins would lead with severe confidence loss and mass liquidation if they don’t offer a constructive settlement, redemption and risk management. This can harm the economy in several ways in the long run.

Therefore, operators, issuers, and intermediaries require to abide by global regulations. Also, stablecoin should be free from terrorism, money laundering, and other illicit activities through policies. Stablecoins should also protect consumers from fraudulent activities by ensuring them about administrative rights. In addition to this, the US Federal Reserve is also working with several other regulators worldwide intending to make stablecoins overcome regulatory and legal challenges. The G7 countries are also exploring regulatory and judicial challenges of stablecoins in the present scenario.

Needs to be Transparent in the Long Run

Most of the stablecoins present to date are widely using for money laundering, for spreading financial terrorism and other criminal activities. Therefore, the US Federal Reserve needs the stablecoin operators to invest time in Due Diligence alongside Anti-Money laundering and KYC practices. Doing so will avoid abuse further.

Furthermore, stablecoins need to spread the word detailing the rights and protections of investors. Additionally, stablecoin issuers should become transparent about how stablecoin can be linked to underlying assets. The G7 countries should connect with the US Federal Reserve to monitor the developments of stablecoin. And, also keep an eye on the risk factors associated. The most important threat to stablecoin is its inability to become a national currency.

The worldwide stablecoin regulators start showing interest soon after Facebook introduces the world with Libra. Libra is so far the most notable stablecoin in the world by the social media giant.