While global leaders strive to establish universal rules for the crypto sector, a divide has emerged between advanced and emerging economies regarding the regulation of stablecoins. The Group of Seven (G-7) economies, an international forum representing some of the world’s most advanced economies, appear more open to regulating stablecoins. In contrast, emerging economies within the broader G-20 group express concerns about the potential impact of stablecoins on monetary policy and financial stability, prompting them to call for stricter regulations, or even prohibitions.
This difference in approach could lead to fragmented oversight and hinder the acceptance of global norms for stablecoins. Both the G-7 and G-20 are committed to creating globally coordinated standards for cryptocurrencies, with Japan and India holding the presidencies of these groups, respectively. However, recent statements indicate contrasting views on regulating stablecoins, with the G-7 aligning with the Financial Stability Board’s (FSB) recommendations, while the G-20 awaits a synthesis paper produced by the International Monetary Fund (IMF) and FSB.
Emerging economies express concerns about the increasing adoption of stablecoins and the subsequent potential effects on the effectiveness of monetary policies. In particular, widespread use of stablecoins could negatively impact these countries’ economic growth, making capital flows more volatile and hampering tax collection and revenue efficiency. While disagreements on stablecoin regulation may stall the establishment of global standards, the FSB emphasizes that its guidelines allow individual countries some leeway in implementing rules according to their particular needs.
During their respective presidencies, Japan and India tasked global standard-setters, such as the IMF, FSB, and the Financial Action Task Force (FATF), to make recommendations and rules for the cryptocurrency sector. Both groups have pledged to implement FATF’s anti-money laundering rules for crypto but have shown differing stances on stablecoin regulation. The G-7 has demonstrated its commitment to implementing the FSB’s individual recommendations for regulating cryptocurrencies and stablecoins by July 2023, while India exercised its agenda-setting power in the G-20 to involve the IMF in leading discussions on global cryptocurrency regulations.
This divergence in views on stablecoin regulation not only highlights the challenges of creating a unified global approach but may also delay the adoption of global standards. While advanced and emerging economies have different priorities and concerns, a comprehensive and balanced regulatory framework is essential for ensuring financial stability and fostering innovation in the cryptocurrency sector. However, striking this delicate balance will require open dialogue among global stakeholders and a coordinated effort to address the concerns of all nations involved.