• A stablecoin is a new class of cryptocurrencies that attempts to offer price stability which is backed by a reserve asset.
• The U.S Federal System has released its monthly Financial Stability Report which is dedicated to the profits and risks associated with “Global Stablecoins”.
• The reserve emphasized on the fact that stablecoins can be utilized to Execute Money Laundering, terrorist financing and other financial crimes.

A stablecoin is a new class of cryptocurrencies that attempts to offer price stability which is backed by a reserve asset. Stablecoins have gained traction as they attempt to offer the best of both worlds i.e the instant processing and security or privacy of payments of cryptocurrencies, and the volatility-free stable valuations of fiat currencies.

The Report:

The U.S Federal System has released its monthly Financial Stability Report which is dedicated to the profits and risks associated with “Global Stablecoins”.

The federal reserve acknowledged the various merits that stablecoins present as a concept. It was stated that stablecoins are faster, cheaper and more inclusive payments could complement existing payment systems. The statements were made on the basis of complicated and poorly accessible traditional financial institutions.

Stablecoin initiatives like Libra, a product of Facebook, has the ability to achieve cross-border growths. Unfortunately, the system has several demerits. The inability to convert the same to National Currencies and the loss of confidence in pegging the stable coins to traditional assets are some among them. This will lead several holders to liquidate their stablecoins.

Such a situation can be the result of a ‘poor design and governance’ which in turn affect the international financial stability and economic transactions.

The Transparency Aspect:

The reserve emphasized on the fact that stablecoins can be utilized to execute money laundering, terrorist financing and other financial crimes. The Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures were suggested by the reserve to be followed by the operators to avoid such illegal activities. The issuers must be transparent and detailed on how a stablecoin is tied to the underlying asset to the consumers and investors.

The report concluded by stating the fact that the Federal Reserve, together with the Group of Seven, will closely monitor the developments and risks associated with stable coins.