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G7 Reports Stablecoins Like Libra Threaten Financial Security

According to the BBC, the G7 group of nations has drafted a report outlining nine major risks that digital currencies, such as Facebook’s proposed Libra, pose to the global financial system.

The G7 report stipulates that even if member firms of the governing Libra Association properly addressed regulatory concerns, it may well not be approved by the necessary regulators. From the report, “The G7 believe that no stablecoin project should begin operation until the legal, regulatory and oversight challenges and risks are adequately addressed,” concluding that, “Addressing such risks is not necessarily a guarantee of regulatory approval for a stablecoin arrangement.” The G7 also cited that global stablecoins have the potential to scale rapidly which could potentially stifle competition and destabilize financial systems if their users were to lose confidence in the coin. The report is expected to be presented at an annual meeting of the International Monetary Fund this week.

Another Setback for Libra?

Stablecoins, such as Libra, are different from other cryptocurrencies, such as Bitcoin, because they are supported by established currencies such as the dollar and euro.The report’s warning could not have come at a worse time for Facebook. On Oct. 4, major payments network PayPal withdrew from the organization. Soon to follow were payment giants Mastercard and Visa pulling out of the Libra project only a few days ago, accompanied by institutions Stripe and eBay.The BBC states that, while the report does not single out Facebook’s proposed Libra stablecoin project, it could spell further trouble for the already contentious digital payments system proposal. Global regulators have already been placing the Libra project under intense scrutiny and Facebook CEO, Mark Zuckerberg will testify before congress about Libra later this month in an attempt to address lawmaker’s concerns.

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Facebook’s Libra Launch Will Be Halted Until Proper Regulations Are Set, According to G7 Draft

A draft G7 statement showed that the financial leaders of the world’s seven largest economies will oppose the launch of the long-awaited controversial stablecoin, Libra. Until the stablecoin is properly regulated, the launch of Facebook’s Libra coin will be halted.

The draft was prepared for finance ministers and central bankers of the United States, Canada, Japan, Germany, France, Italy, and the United Kingdom. Although it was mentioned that digital payments could potentially improve access to financial services, and remove inefficiencies and high costs, these payment services must be appropriately regulated.

Supervision and regulation are essential to avoid the undermining of financial stability, consumer protection, privacy, taxation, and cybersecurity, according to the draft seen by Reuters. The draft read:

“The G7 continues to maintain that no global stablecoin project should begin operation until it adequately addresses relevant legal, regulatory, and oversight requirements through appropriate design and by adhering to applicable standards.”

The G7 draft also noted concerns regarding the threat of ransomware attacks, which have increased during the COVID-19 pandemic. The draft stated, “These attacks, which often involve payments in crypto-assets, jeopardize essential functions along with our collective security and prosperity. We affirm our resolve to combat this threat collectively as well as individually.”

Earlier this year, the Financial Stability Board, the G20 body that advises on ways to improve the global financial system, has published a study on the challenges, which stablecoins pose for the global economy. The FSB stated that regulatory frameworks have already covered several activities associated with stablecoins, although there are other risks that many national regulators could be left unprepared for.

The study acknowledges that stablecoins have significant potential to contribute to the development of the global financial system. Digital assets could give millions of people without bank accounts access to the international financial system and provide consumers across the globe greater freedom for low-cost transactions. However, the study also presents that such benefits make stablecoins much riskier for the global economy and financial system.

In July G20 officials have announced that they will begin the preliminary regulatory groundwork for the group to accept digital payments with the work to commence in October.

G7 Will Meet to Discuss CBDC and Digital Tax this Week Says Japan’s Finance Minister

The Group of Seven (G7) will meet on Feb.12 to discuss central bank digital currencies (CBDC), digital taxation and global debt according to Japan’s Finance Minister Taro Aso.

Japanese Finance Minister Taro Aso announced today that the G7 financial leaders would kick off debate on Friday on emerging market debt problems, implementation of digital taxation and central bank digital currency.

The G7 is an inter-government cooperation of seven of the world’s largest economies—the United States, Canada, France, Germany, Italy, Japan, and the United Kingdom.

Britain will chair the meeting of G7 finance ministers and central bank governors to try to map a way out of the global economic crisis inflicted by COVID-19 and find a solution to an international tax wrangle.

As announced by Japan’s Minister Aso, the meeting will begin with the G7 leaders discussing the implementation of digital taxation and emerging debt problems and will also include CBDC.

The G7 announced last October that the regulation of digital currencies was now a priority of the group and have called for legislation to govern digital payments.

The G7 statement released last October statement also highlighted that the adoption of CBDC’s could create significant efficiency savings and greatly reduce friction in the payments sectors of its member states.

G7 Inks New Taxation Deal, What is in it for Crypto Firms?

The institution of seven leading industrial countries, known as the Group of Seven (G7), has agreed to request multinational corporations (MNC) to pay more taxes.

According to a BBC report, the countries including the United States, United Kingdom, Germany, Italy, France, Canada, and Japan agreed in principle on a minimum tax rate of at least 15% for big firms operating in various locations worldwide. Some of the firms billed to be impacted include but not limited to Facebook, Amazon, Microsoft, Spotify, and others.

The deal was agreed upon to forestall the use of “Tax Havens,” or countries that offer very low corporate taxes to evade paying taxes by these firms. Based on the new deal, companies will now pay more taxes in regions where they do business, a deviation from the norm in which firms can declare their profits where they are most at an advantage.

The deal will now be proposed to the G20 with anticipation by other big names, including China, Russia, and Brazil, to sanction the move in a bid to take it global.

How Does This Affect the Crypto Ecosystem?

There are emerging companies in the digital currency ecosystem that are set to be impacted by this new arrangement. As the industry matures, we have started seeing firms offering core digital currency services debuting nationally recognised stock exchanges such as Coinbase Global Inc, with more others in the pipeline.

Per the new taxation deals, blockchain and cryptocurrency-centric firms will also not have tax havens as the likes of Binance exchange have been accused of evading taxes. The areas where they do businesses are the areas they will get to pay more taxes, a move that will become more pervasive if the decision is made global.

Like the other multinational companies like Facebook, crypto firms will also continue their business as usual, except they may need to pay more taxes than they have done.

G7 Set to Release the Guidelines for the Creation of CBDCs

The Group of Seven (G7) industrialized nations are looking forward to accepting the proposals of a draft which seeks to enshrine some set of standards in the creation and issuance of Central Bank Digital Currencies (CBDCs).

According to the Japan Times, neither of the members of the G7 including the US, Italy, Japan, Canada, Britain, France, and Germany have confirmed they will be implementing a CBDC, and the draft contains as many as 13 recommendations.

The G7, according to the report understands that the decision to develop a CBDC is a sovereign matter, however, it noted that “by setting out a common set of principles, and underscoring the fundamental importance of shared values such as transparency, rule of law and sound economic governance, these principles can guide and inform exploration of retail CBDC in the G-7 and beyond.”

Amongst the issues, the draft proposal will seek to address the development of national and regulatory policies for the proposed digital money. Accountability standards and privacy must also be important factors that should be considered by countries looking to implement a CBDC.

The G7 will also aim at pushing countries with CBDC agenda to consider robust safeguards that can protect currency substitution with other countries.

“Where overseas access to a jurisdiction’s CBDC could leave other countries vulnerable to currency substitution or other spillovers, collaborative work to design and implement safeguards, particularly through relevant international organizations, can help mitigate negative effects,” it said.

As reported by Blockchain.News on October 6, the International Monetary Fund (IMF) president Kristalina Georgieva has recently said that about 110 countries have CBDC development at some stage.

While the G7 is a fraction of these numbers, they notably have such influence that can make the difference is passed off by the members when the Finance Chiefs of this body meet on Wednesday.

Above all, the draft recommendation will also seek to foster currency interoperability, albeit, with standards that can help prevent financial frauds, and the risks of evading sanctions.