The world's leading economies need to plug gaps in their rulebooks to avoid digital currencies like Facebook's planned Libra stablecoin from undermining financial stability, the Group of 20 Economies' (G20) regulatory watchdog said on Tuesday.
Stablecoins are tied to a traditional currency or basket of assets, and used for payments or storing value.
The G20's Financial Stability Board (FSB) set out 10 recommendations on Tuesday for a common, international approach to regulating stablecoins, prompted by social media giant Facebook proposing its Libra stablecoin.
They should face the same rules as other businesses that present the same risks, regardless of technology used, it said.
Existing financial rules, such as for payments and customer checks, generally apply in whole or in part to stablecoins and address at least some of the risks they generate, the FSB said.
Coverage, however, can be patchy from country to country, exposing gaps for supervising a cross-border stablecoin, the FSB said.
The recommendations propose flexible, cross-border cooperation to avoid a stablecoin playing off one jurisdiction against another.
"Relevant authorities should, where necessary, clarify regulatory powers and address potential gaps in their domestic frameworks to adequately address risks posed by global stablecoins," the FSB said.
Stablecoin operators must effectively manage risks, be operationally resilient, have safeguards against cyber attacks, and systems for stopping money laundering and terrorist financing, it said.
Several of Libra's major backers, including Visa, Mastercard and PayPal, have since dropped out after scepticism from regulators and central banks, which said it must not be launched until adequate rules are in place.
Facebook's potentially huge reach in cross-border payments would make it an instant, systemic rival to traditional currencies, central banks have said.
The company said last month it was still planning to offer the Libra token but was also working on digital versions of government-backed currencies.
The Switzerland-based Libra, which will issue and govern the digital currency, has said that it welcomes the regulatory scrutiny. It declined to comment further.
Central banks are also looking into the possibility of issuing their own digital currencies as the use of cash for payments declines. The threat to their control over money posed by Libra's potential launch has been a major factor in accelerating research efforts.
Existing stablecoins, many of which are available internationally, are still small in scale and pose no risks to financial stability, but this could change if use significantly increased, the FSB said.
The largest, Tether, with a market capitalisation of around $6.3 billion (roughly Rs. 48,002 crore), it still a fraction of the size of bitcoin. It is little used beyond the world of cryptocurrency trading.
The FSB's public consultation is open until July 15, with a final report published in October.
© Thomson Reuters 2020