Drawbacks of Stablecoin Cross-Border Use Outweigh Benefits: Global Payments Watchdog

• Even fully regulated stablecoins may not have a positive impact on cross-border payments, according to a report by standard setter CPMI.

• Challenges including coordination, competition, network scale and inadequate regulation, could outstrip any benefits, the report said.

No existing stablecoin is fully compliant with relevant regulatory requirements, and even if one were to exist, it might not prove a great help for cross-border payments, global standard setters said in a Tuesday report.

The Committee on Payment and Market Infrastructures (CPMI), which sets norms for the sector for the Bank for International Settlements, said stablecoins could “open up opportunities” for cross-border transfers by speeding up transactions and lowering costs, as proponents claim, but potential drawbacks would probably outweigh the benefits.

“The challenges could include coordination, competition, network scale and market structure, and the lack of internationally consistent and effective regulation, supervision and oversight,” the report said.

Standard-setters are rushing to introduce norms for stablecoins, which are cryptocurrencies whose value is pegged to that of other assets such as fiat currencies, particularly after Facebook (now Meta) proposed such a currency and terraUSD (UST), a multibillion-dollar stablecoin, de-pegged from the U.S. dollar in May 2022 with catastrophic consequences for the crypto world. The Financial Stability Board (FSB), which is set to publish global standards for stablecoins, warned in February that existing stablecoins will fall short of the guidelines.

The CPMI report follows an effort announced last October to probe if stablecoins could help improve cross-border payments. The findings aren’t flattering.

“The report acknowledges that no stablecoin arrangements yet exist that are deemed to be properly designed and regulated and fully compliant with all relevant regulatory requirements. Further, even if such stablecoin arrangements did exist and could help to address specific cross-border payment frictions, they might not necessarily positively impact cross-border payments as the drawbacks could outweigh any potential benefits,” a separate statement on the report said.

The incoming head of CPMI, the former European Central Bank board member Fabio Panetta, said in a Tuesday Financial Times op-ed that the world needs a better cross-border payments network, but that unbacked crypto and even stablecoins “cannot guarantee convertibility at par at all times, making them prone to runs.”