A type of digital currency that aims to maintain a stable value relative to that of an underlying asset or benchmark has the potential for mass adoption, but that potential also makes it more vulnerable to criminal abuse, a global standard setter for anti-money-laundering laws said.
The Financial Action Task Force, in a report to the G-20 finance ministers, identified illicit finance vulnerabilities specifically with so-called stablecoins and said risks should be analyzed and mitigated before such digital currencies are launched, particularly if they have the potential for mass adoption.
The value of stablecoins can be pegged to a variety of assets or benchmarks, such as the value of a fiat currency, or a basket of assets that could include investment securities and commodities. Some existing stablecoins include Tether, USD Coin and Paxos. Proposed ones include Facebook-backed Libra and Gram.
Stablecoins so far have only been adopted on a small scale. But their promise of price stability could make them more likely to reach wider adoption than some existing virtual assets, particularly if they are sponsored by large technology, telecom or financial companies, according to the report, which was published this week.
However, stablecoins face some of the same money-laundering and terrorist-financing risks as other virtual assets, such as increased anonymity and quick exchanges of virtual assets to help disguise the origins of illicit funds, the FATF said.
To mitigate risks, the FATF proposed that all jurisdictions implement its standards for virtual assets. It noted that some jurisdictions, including 25 countries or regions among its members, and virtual asset service providers have made progress in implementing its standards.
The FATF also plans to review the implementation and impact of its standards by June 2021 and provide further guidance on stablecoins and virtual assets.
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