In stable coins we trust? Not without rules

The Securities Commission and Bank Negara are rightfully treading with caution when it comes to facilitating innovations in blockchain and cryptocurrencies. — Reuters

STABLECOINS continue to be the rage.

Although these digital tokens had been around for over a decade, they seem to be gaining more traction these days.

A Bloomberg report this week noted that the two payment system incumbents – Visa Inc and Mastercard Inc – are facing serious competition from stablecoins, which are pitching themselves as cheaper and more efficient means for merchants to accept payments.

Typically pegged to the US dollar, stablecoins allow consumers to pay merchants directly from their crypto wallets, without routing payments through traditional banks and card networks, thereby significantly slashing transaction fees charged by those institutions.

Meanwhile, in the United States, President Donald Trump is actively promoting policies to boost US-issued stablecoins.

His administration favours private-sector stablecoin offerings over Central Bank Digital Currencies.

No wonder that in April, Italy’s Economy Minister Giancarlo Giorgetti posited that US policy on stablecoins could be more disruptive than trade tariffs.

He was referring to the prospect of the widespread usage of stablecoins in the European Union as a mean of payment for goods and services, thereby bypassing the need for the use of the euro or any digital version of the currency.

But, as The Economist recently pointed out, cryptocurrencies have facilitated fraud, money-laundering and other financial crimes on a gargantuan scale.

So, even with favourable treatment by the US government today, strong regulatory frameworks are needed to ensure these instruments do not pose systemic risks.

The Economist also argued that stablecoins are vulnerable to bank-like runs and hence should be regulated similarly to banks.

In Malaysia, the Securities Commission and Bank Negara are rightfully treading with caution when it comes to facilitating innovations in blockchain and cryptocurrencies.

The government should not seek to unduly put pressure on these institutions to hasten acceptance of digital tokens just because other countries are doing so.