The Financial Stability Oversight Council released a new report this week highlighting various risks to the U.S. financial system and economy. Part of the report focused attention on potential dangers that could result from increased adoption of so-called stablecoins, like Facebook’s proposed Libra currency.
The warning appeared in a section of the report covering financial innovation like cryptocurrency. According to FSOC:
If a stablecoin became widely adopted as a means of payment or store of value, disruptions to the stablecoin system could affect the financial system and the wider economy, warranting greater regulatory scrutiny. A decline in the value of certain digital assets could result in the transmission of risk to the financial sector through financial institution exposures, risks to the payment system, wealth effects, and confidence effects.
Consumers, investors, and businesses could also face losses if the market price of such assets is unstable. Risks to the payment system, if not properly managed, could present financial stability risks, given the importance of a well-functioning payments system in facilitating commercial activities.
The report’s authors stressed the importance of ongoing regulatory attention, since the markets for digital assets are continually evolving. They also noted that digital asset networks come with their own operational risks that could negatively impact users, due to potential disruption of the networks’ underlying technologies.
FSOC also directly addressed concerns about recent technology company moves into the financial services sector, noting that they “may not be subject to many types of financial services regulation with which incumbent financial service providers are required to comply.”
The Financial Stability Oversight Board was created by the Dodd-Frank Act and tasked with promoting market discipline, identifying potential risks to U.S. financial stability, and responding to emerging threats.