Stablecoins and Volatility: A Warning from Worldwide Standard-Setters
Stablecoins adopted by multiple jurisdictions have caught the attention of worldwide standard-setters, who have announced a warning about their probable impact on financial stability. According to a recent report, these stablecoins could transmit volatility more abruptly than other cryptocurrencies.
Targeted Restrictions to Prevent Financialย resources Flight
The report outlines a particular concern regarding foreign currency-denominated stablecoins. If these stablecoins become easier and cheaper to hold in large quantities compared to foreign currency bank accounts, thereย is a risk of rapid financialย resources flight or reversals. This could have serious consequences for the stability of financial systems.
The Risks of Stablecoins
Althoughย while stablecoins can facilitate numerous transactions, they likewise come with distinct dangers. These dangers include the maintenance of a stable value and dependency on private issuers. The recent de-pegging incident of the algorithmic stablecoin terraUSD from the Unitedย States dollar serves as a real-time example of these dangers. The de-pegging caused wholeย lotย of market losses amounting to billions of dollars.
Furthermore, the report emphasizes that worldwide stablecoins adopted by multiple jurisdictions could pose even greater dangers to financial stability. These stablecoins have theย capacity to cause wholeย lotย of volatility and instability within the financial system.
Hot Take
It is critical for regulators and market participants to carefully assess theย dangers associated with stablecoins and implement targeted measures to mitigate probable threats to financial stability. Althoughย while stablecoins offer advantages in terms of transaction efficiency, their impact on the stability of worldwide financial systems should not be underestimated.
Cora Skindell is a standout figure in the world of cryptocurrency analysis, research, and editorial expertise. As a seasoned crypto analyst and researcher, Cora’s insights delve deep into the complexities of digital assets, resonating with a diverse audience. Her ability to dissect intricate crypto concepts is complemented by her adept editorial skills, enabling her to distill complex information into easily understandable content.
