The Bank of Italy (Banca d’Italia) called for strict regulation of stablecoins in a report released in March 2019. June 28th.

Banks question the reliability of stablecoins

While outlining crypto regulation in general, the central bank emphasized the need to regulate stablecoins, arguing that they “haven’t been proven to be stable at all.”

The bank said algorithmic stablecoins are “intrinsically vulnerable,” adding that other stablecoins suffer from price volatility and have speculative uses.

The Bank of Italy cited the collapse of the algorithmic stablecoin TerraUSD (USTC) and the falling price peg associated with the collateralized stablecoin Tether (USDT). In light of these events, regulators “have no choice but to take action,” he said.

The bank also suggested that the proliferation of stablecoins could drive innovation in the decentralized finance (DeFi) space and create connections with traditional finance. As such, the regulation of stablecoins and DeFi should be “well-synchronized,” he said.

It suggested that stablecoin issuers stand to benefit from regulation that mandates liquidity risk management. As an example, he cited the EU-wide Crypto Asset Market (MiCA) framework, which aims to ensure consumer protection and market stability. Elsewhere, the central bank said the EU Framework for Payment Instruments, Institutions and Arrangements (PISA) could be extended to stablecoins.

The bank also cited a joint committee framework between the Bank for International Settlements (BIS) and the International Organization of Securities Commissions (IOSCO), known as CPMI-IOSCO, as a “groundbreaking effort”. This framework applies to stablecoins that are pegged to a single currency. Address redemption and issuance, custody and exchange, transfer, and governance.

Not all cryptocurrency activities require regulation

The Bank of Italy concluded its report by stating that not all cryptocurrencies and their activities need be subject to financial regulation.

Throughout the report, central banks have differentiated collateralized (or fiat-backed stablecoins) from other crypto assets. He also noted that in some cases, cryptocurrency fraud can be countered by criminal prosecution rather than specific regulations.

Still, the bank also mentioned other market participants, such as brokerage services and DeFi providers, which could require regulation.

The Italian Central Bank calls for stablecoin regulation in a new report, first published on CryptoSlate.

By Jules

Leave a Reply