In a recent comprehensive report on global stablecoins, the European Central Bank, or ECB, pushed for clear regulatory parameters for stablecoins, citing risks as well as gaps in current regulations.

„In order to reap the potential benefits of global stablecoins, a robust regulatory framework needs to be established to address these risks before such arrangements are allowed to operate,“ the ECB wrote in its May 5 report.

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The ECB’s report pointed to a number of benefits surrounding stable international currencies, including speed and simplicity, which the public considers important.

However, the leading bank did not refrain from detailing the various possible risks of

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and difficulties with such a currency, including issues relating to stability, value and possible systemic failure. One of the specific risks is that users may not be able to collect their exact „stable“ value if the asset loses its fixed value, or if its backing deviates from an expected level. As stated in the report:

„There is a risk that end users will view stablecoin as equivalent to a deposit, given the promise of a ’stable‘ value and the possibility of converting currency holdings back into fiat currency at any time.“

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One size may not be the best approach. The report also addressed the issue of regulation. Stablecoins without borders may or may not fit into existing government frameworks.

Depending on their type, stablecoins can derive their value from several sources, including major financial assets, cryptoactives and fiat currencies, making regulatory waters unclear. Some stablecoins may even fall into the investment category instead of a stable value source. The ECB stated:

„Given the complexity of its structure, a stablecoin arrangement could, depending on its specific design features, fall within one of several different regulatory frameworks, or potentially within none at all.“

The ECB also studied Facebook’s Libra in its report, relating various numbers and metrics to different scenarios.