Huw Jones

LONDON (Reuters – Stablecoins must comply with traditional payment safeguards under Wednesday’s proposals of regulators. The proposal comes as authorities try to understand this rapidly changing sector.

Stablecoins are digital currencies that have a fixed value in relation to other currencies or a commodity like gold to prevent the volatility that renders bitcoin and other digital tokens unpractical for commerce.

Facebook Inc (NASDAQ:) In 2019, the company introduced its stablecoin Diem. It was then called Libra. This raised concern among central banks and governments that an overnight competitor to major payment systems could be created without much regulation.

Diem has since drastically scaled down its ambitions to create a U.S. Dollar stablecoin.

On Wednesday, the IOSCO Group of Securities Regulators and Bank for International Settlements (a global forum for central bankers) discussed how existing rules for major clearing and settlement should be extended to’systemic,’ or highly used, stablecoins.

These proposals were put to public review before they are finalised in the early part of next year. They put into effect what regulators long wished for: identical rules and associated risks for similar business types.

These rules require that a stablecoin operator establish a legal entity to govern and handle operational risks such as cyberattacks.

Although still not widely used for commerce, stablecoins have seen rapid growth in the crypto trading market as larger retail investors and large-scale institutional investors embraced the new asset class during COVID-19.

Market capitalisation for circulating is now $68 Billion, which compares to $15 Billion a year earlier. CoinMarketCap also reports that the value of circulating, another important stablecoin has risen dramatically, to $30 billion, from $2.7 billion last year.

The principles would apply to countries which allow stablecoins for operation.

Ashley Alder, Chair of IOSCO said that the report made significant progress in understanding stablecoin arrangements’ implications for the financial sector and provided clear and concrete guidance about the standards it must meet in order to preserve its integrity.

However, the proposals are not intended to address specific issues related to stabilitycoins that have been pegged to a fiat currency basket. These topics are being looked at separately.