The FSB has warned of emerging threats from stablecoins and private finance. Andrew Bailey, Governor of the Bank of England, stated that global policy responses will be strengthened to address the growing risks posed by the increasing use of private finance and stablecoins.
Zhitong Finance APP learned that Andrew Bailey, Governor of the Bank of England, stated in his latest speech that the Financial Stability Board (FSB) has vowed to intensify global policy responses to unprecedented “emerging threats” posed by the growing use of private finance and stablecoins.
In a speech to the G20 as the chair of the Financial Stability Board (FSB), Bailey pledged a reform that will make the FSB’s monitoring policies “more agile and capable of faster identification and response to emerging vulnerabilities and financial gaps.” The FSB will engage in “open and candid discussions among member countries” regarding next steps and will also “strengthen ties with the global private sector to benefit from their expertise and perspectives on risks and market vulnerabilities.”
The Financial Stability Board (FSB), a global financial regulatory body established by the G20 (Group of Twenty) in June 2009, is headquartered in Basel, Switzerland. Its current chair is Andrew Bailey, Governor of the Bank of England.
It is understood that in a letter submitted prior to this week’s G20 meeting, Bailey stated: “Whether it is the rise of private finance, the impact of geopolitical tensions, or the increasingly important role of stablecoins in payments and settlements, our ability to identify and address emerging risks is crucial.”
Overall, Andrew Bailey, Governor of the Bank of England, vowed to strengthen global policy responses to emerging threats posed by the growing use of private financial systems and stablecoins worldwide.
Stablecoins—a form of digital currency backed by traditional assets such as the US dollar—have seen rapid growth in adoption in recent months, particularly in the US market. Some Wall Street analysts even predict that their scale could swell to USD 2 trillion. Advocates view them as a blueprint for a 21st-century global payment system, while other analysts warn that they may create new cracks in the financial system.
Designed to maintain a constant value, stablecoins are typically pegged 1:1 to the US dollar. In recent years, the use of stablecoins has surged, especially among cryptocurrency traders moving funds between tokens such as Bitcoin and Ethereum, as well as in the accelerated growth of cross-border financial services penetration.
Stablecoins are a special type of cryptocurrency that maintains a stable value ratio by being anchored to core reserve assets such as the U.S. dollar, euro, or gold. As key legislation to establish a regulatory framework for stablecoins advances in the U.S. Congress, these price-stabilized cryptocurrencies are beginning to enter the mainstream of global financial markets as an asset class.
Stablecoins are essentially ‘on-chain US dollars,’ backed 1:1 by highly liquid US dollar assets (cash, short-term US Treasuries). By combining the ‘US dollar’ with ‘blockchain,’ stablecoins provide a new payment medium that is both stable and efficient, while also showcasing the commercial potential of ‘digital dollarization’ to the capital markets.
The European Union’s highest-level financial stability regulatory body is pushing for a ban on stablecoins jointly issued with other jurisdictions, primarily due to concerns that related risks may spill over across borders in unpredictable ways.
Bailey wrote in the statement: ‘Significant gaps remain in addressing financial stability risks, and few countries/regions have finalized comprehensive regulatory frameworks for global stablecoin arrangements,’ pointing out the possibility of ‘regulatory arbitrage.’
In recent years, non-bank finance has been the top priority for the FSB. However, the regulatory body has struggled to collect comprehensive risk data from this rapidly growing market, which spans a wide range of sectors—from hedge funds making leveraged bets on US Treasuries to private credit, encompassing virtually everything.
A massive wave of support for deregulation means that despite the non-bank market expanding to roughly the same size as traditional lenders, prompting the Financial Stability Board to water down some proposals, political interest in new rules remains insufficient.
Bailey stated that the FSB would ‘conduct open and candid discussions among member states regarding next steps’ and also ‘strengthen communication with the global private sector to draw on its technical expertise and perspectives on risks and vulnerabilities.’ He even warned that the trend toward deregulation has raised concerns that reform efforts may be significantly waning.
He cited the significant delay in implementing a package of post-crisis banking reforms proposed nearly eight years ago as a ‘notable example’—in the US, this is referred to as the ‘Basel Endgame.’ He noted that over the past 15 years, jurisdictions worldwide have failed to achieve ‘full, timely, and consistent implementation’ of agreed-upon rules.
Bailey wrote: ‘This calls for deeper reflection on why these gaps exist and what steps we can take to address them.’
