Central Bank Regulations Leave Little Room for Private Stablecoins
Rules for bank-issued digital currencies could lead to restrictions for existing stablecoins.
Key Takeaways
- Several countries and regions are developing fiat-backed, central bank digital currencies (CBDCs).
- Some regulators aim to restrict or ban existing stablecoins in order to make room for official CBDCs.
- However, these restrictions have not yet been enforced.
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Numerous central bank digital currencies (CBDCs) are under development, meaning that various countries are planning to issue a digital asset tied to their own regional fiat currency.
This has largely been considered good news for the crypto industry; however, recent trends ask whether CBDC regulation could harm popular stablecoins that are already in circulation.
Regulations Could Restrict Stablecoins
This week, the People’s Bank of China (PBoC) published a draft law indicating that no third parties are allowed to create a yuan-backed cryptocurrency.
“No unit or individual may make or sell tokens, coupons and digital tokens to replace RMB in circulation in the market,” the document states.
Companies that violate this rule will be fined five times the income that they generate. If the law is passed, China’s CBDC will effectively be the only stablecoin for citizens.
China is not alone: in September, several European nations announced plans to heavily restrict third-party stablecoins until regulations are more clear. Though those restrictions are not necessarily permanent, the law is clearly designed to make room for regulated CBDCs.
Bruno Le Maire, Finance Minister of France, has explicitly stated that the European Central Bank should be “the only one to be allowed to issue a currency.”
In April, the Financial Stability Board (FSB), an international G20 organization, recommended numerous restrictions on stablecoins. Though it did not explicitly recommend that nations create their own CBDCs, the suggested policies leave room only for heavily-regulated stablecoin projects, putting CBDCs at a clear advantage.
Will These Regulations Succeed?
The extent to which these regulations will be enforced is unclear. Assets such as Tether‘s yuan-pegged stablecoin and Stasis’ Euro-pegged stablecoin appear to be operating as normal, meaning that the regulations under consideration do not pose an immediate threat.
On the other hand, numerous stablecoins have faced regulatory issues in the past. Facebook’s Libra faces continuous resistance from regulators and Basis famously failed in December 2018 due to regulatory issues. JP Morgan and Stronghold, meanwhile, have restricted their stablecoins to institutional customers.
Regulations that favor CBDCs will add another obstacle for those projects to consider.
Even if CBDC-related regulations do not result in heavily-enforced bans on traditional stablecoins, regulations are clearly becoming more complex. Traditional stablecoins will need to navigate those regulations to remain operational.
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