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Stablecoin regulations would need to eliminate risks regarding liquidity of underlying assets, claims IMF



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As Central Banks across the world start looking into cryptocurrencies and DLT to see how feasible a fiat-backed digital currency would be, the IMF (International Monetary Fund) has now entered the conversation as well, publishing a blog post exploring the advantages of a privately issued stablecoin, one which is backed by central bank reserves.

The biggest problem governments are likely to face with such a plan is their lack of expertise with regards to intuitively designed and efficient platforms. And while Central Banks are not likely to approve a fiat-backed digital currency, an offering like USDC or Facebook’s Libra, could simply be more efficient.

The IMF says that regulations will need to eliminate risks regarding liquidity of the underlying assets and that they should be protected from other creditors, if the stablecoin provider goes bankrupt.

Though their proposed CBDC model would require absolute centralization, it would allow the private sector to focus more on innovation, while Central Banks focus on providing trust and efficiency, thus integrating the private sector with trust in central authorities.

In a world of mostly centralized stablecoins, DAI is currently the only decentralized stablecoin with a reasonable adoption rate. More alternatives are essential in order to prevent payments via stablecoins from becoming redundant.

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Chayanika is a full-time cryptocurrency journalist at AMBCrypto. A graduate in Political Science and Journalism, her writing is centered around regulation and policy-making regarding the cryptocurrency sector.