Stablecoin Risks Rise in Emerging Markets, FSB Warns

A recent Financial Stability Board (FSB) report warns of significant risks linked to the increasing use of global stablecoins (GSCs) in emerging markets and developing economies (EMDEs).

According to the report released on July 23, the rise in stablecoin adoption, particularly those pegged to foreign currencies, poses potential threats to financial stability in these regions.

The surge in stablecoin use is fueled by limited banking access and local currency volatility. However, regulators are concerned that these digital assets might destabilize financial systems and amplify economic challenges. The report highlights that recent stablecoin failures underscore their vulnerability if not properly managed.

Key risks identified include threats to financial integrity, potential for illicit finance, and cybersecurity issues. To mitigate these risks, the FSB recommends developing strong regulatory frameworks and improving international cooperation.

Currently, major stablecoins like Tether (USDT) and USD Coin (USDC) are pegged to the US dollar, while new stablecoin projects are emerging, such as Paxos’s gold-backed stablecoin in Singapore and plans for a Hong Kong dollar-linked stablecoin.

Recent EU regulations have also led to the delisting of some stablecoins by crypto exchanges, raising speculation about a potential shift towards euro-backed stablecoins in the future.