Facebook may launch its long-awaited digital currency in January 2021 as a stable currency backed by the US dollar. Central banks and regulators have been urged to take action since Facebook first announced its intentions by publishing a white paper in 2019. And they have a right to worry because stable currencies, especially those named Diem, could have a huge impact on the network. new risks for consumers and depositors, as well as for the global financial system.

About the topic: What is Libra? Hug Facebook’s new digital currency

But they can also provide great benefits in terms of speed, efficiency and reasonable price. They can serve as a store of value in countries that do not have a stable national currency, similar to dollarization seen in many emerging market economies today. Well-regulated stable coins with appropriate legal, regulatory and governance controls play an important role in the global economy and can provide the benefits of crypto-technology to a whole new generation of users.

Dim, formerly known as Libra, is the most popular stablecoin. This has been discussed since Facebook first announced its intentions in 2019. In fact, Demoux is widely credited with adding rocket fuel to the central bank’s hitherto weak investigation of the central bank’s digital currencies, or CBDC. This has also been met with great concern by the world regulatory community, which has since developed strict stablecoin rules.

Why are regulators and central banks so concerned about currency stability? Do they have a role?

Stable currencies are cryptocurrencies that seek to stabilize the value in relation to another asset – be it a single fiat currency, a basket of fiat currencies or a commodity. The idea is that by determining the value, it can be used as a payment method.

Related: Stablecoin’s explanation

This has not been achieved by the previous generation of cryptocurrencies – bitcoins (BTC) etc. Bitcoin is still very volatile, as the price movement of the last month shows.

Stablecoins are a completely different kettle. They are by their nature designed as a store of value, the most important characteristic of money, and can thus act as a means of payment.

There is also potential for major network effects with DEEM. Facebook has 2.7 billion active users every month, which means that Diem can instantly become an “exchange tool” in many parts of the world.

There is risk. Secure wallet storage, good corporate governance, money laundering, data protection, tax compliance and cyber security are all known risks that must be managed. Stable currencies entail additional risk – not least by ensuring that they are adequately supported by assets linked to them, and that all necessary controls to manage these reserves are in place.

Stable currencies, which have become stories of global success, pose even more problems. This can have serious implications for today’s financial systems if consumers and savers try to keep these currencies against their national currencies. It may even have implications for the country’s monetary policy and ultimately economic growth. This is why global regulators are so busy.

In October 2019, G-7 launched its paper for stable currency. He recognized the benefits of a stable currency in terms of “faster, cheaper and more inclusive” global payments, and focused on the legal, regulatory and supervisory challenges of this new innovation. The document highlights the risks of “monetary policy”, “financial stability”, “international monetary system” and “fair competition”.

Regulators are now working to solve these problems. This autumn, the European Commission presented a comprehensive legislative proposal to regulate cryptoassets. Although this applies to all cryptoassets, it introduces particularly strict requirements for issuers of “asset-linked tokens” (stablecoins) and even stricter requirements for “asset-linking tokens” (global stablecoins). UK Treasury, UK Treasury plans to release drafts of stable currencies and digital currencies for central banks soon.

We welcome these rules. A stable currency can improve the efficiency of the existing financial system by offering faster and cheaper payments, especially for international transfers. They can also improve access to financial services and can become a valuable asset in countries where there is no stable local currency. Properly regulated stack coins can bring cryptocurrencies to a whole new generation of users.

The upcoming regulatory mandate in Switzerland is the latest in a Facebook series that launches Diem as a payment method.

Source: CoinTelegraph