A new ECB report outlines that stablecoins should not be named stablecoins while also saying that it has the necessary instruments to regulate them. Following the latest cryptocurrency news, we are reading more about their report.
In a recent ECB Report, we can read that the European Central Bank questioned the accuracy of the name of the stablecoins saying that it is misleading to users. the paper also outlined that stablecoins could have a very important role in the digital economy if adequately regulated. Whether stablecoins are backed by a fiat currency such as the US dollar or commodities such as gold, they are created to provide a stable alternative to the highly volatile cryptocurrency market. Their role in the crypto space has been expanding dramatically over the past few years as well.
It now seems that the ECB won’t consider the term stablecoin as appropriate according to the recently released paper examining the nature and uses cases of stablecoins:
“The term “stablecoin” may be perceived to have positive connotations in terms of stablecoins’ intrinsic stability and usability as a form of money, but these features are neither intrinsic to, nor a prerogative of, stablecoins in and of themselves – instead, they can be attained only through appropriate design and effective risk management.”
Further in the paper, we can see that the ECB noted that the name should be substituted when establishing a clear regulatory principle on their usage. Although the document didn’t offer any solution, it said that it needs to be a “choice of the terminology to shift the emphasis away from the issuers’ promise and stability.”
Similarly to the United States Commodity Futures Trading Commission, the ECB argued that stablecoins require proper legislative framework but the report also highlighted that the central bank has the tools to establish regulations:
“The Eurosystem’s oversight framework will cover stable coin arrangements that qualify as payment systems, regardless of the technology used and organizational setup.
Furthermore, stablecoin arrangements that set standardized and common rules for the execution of payment transactions between end-users may fall under the oversight framework for payment instruments and schemes, which is currently being revised.”
The ECB report outlined that it also provides a range of supervisory powers to banks thus enabling them to avoid the risks that are coming from stablecoin-related activities. Banks should also establish a risk management framework to commensurate the role in these coins’ usage.
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