In the past year, three major financial oversight bodies have voiced concerns about threats to financial stability purported to be posed by stablecoins. While acknowledging the potential for enhanced payments efficiency, reports from the Bank for International Settlements, the United States Federal Reserve and, most recently, from the Financial Stability Board all emphasize numerous risks under the banner of “financial stability.” The concern is with global stablecoins, which the FSB defines as having “potential reach and adoption across multiple jurisdictions and the potential to achieve substantial volume.” The FSB report included a glossary of definitions for key terms, although none was provided for “financial stability.”
The simplest way to conceive financial stability is as an absence of instability. The 2007–2008 global financial crisis, or GFC, marked the epitome of modern financial instability. It was in response to this crisis that G-20 leaders established the Financial Stability Board in 2009. Hosted and funded by the BIS, the FSB monitors the global financial system, coordinating the work of domestic financial authorities and other global bodies. Its stated objective is to “address vulnerabilities affecting financial systems in the interest of global financial stability.” Preventing another GFC-like event is presumably the main purpose of this body.
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