Lawyer's point of view | Xiao Wei: The policy and regulatory risk of the stable currency comes from two aspects.

Source: Daily Economic News Editor's Note: The original title is "Digital Currency Expert: Stabilizing the Policy and Regulatory Risks from Two Aspects" October 17-18, 2019, Governor of the People's Bank of China Yi Gang, Vice President Chen Yulu attended the G20 ministerial and deputy-level meetings of the G20 finance and central bank in Washington, DC. The meeting focused on topics such as the global economic situation, infrastructure investment, international financial architecture, financial sector reform, stable currency, and international taxation.

The meeting unanimously agreed to issue the G20 statement on stable currency, affirming the potential benefits of financial innovation, and pointed out that stable currency has a series of policy and regulatory risks, especially in the areas of anti-money laundering, counter-terrorism financing, consumer protection, market integrity, etc. Evaluate and address these risks before the Stabilization Coin project begins. The meeting requested international institutions such as the Financial Stability Board, the IMF, and the Financial Action Task Force to continue to study the risks and impacts of the stable currency.

In the same period, President Yi Gang met with Bank of England Governor Carney, and the two sides exchanged views on the world economic situation, the Brexit, strengthening Sino-British financial cooperation, and digital currency.

It must be said that digital currency is a hot topic of current concern, and the G20 ministerial and deputy-level meetings of the G20 finance and central bank also show the particularity of the stable currency to people's vision.

So what exactly is a stable currency? What are the policy and regulatory risks facing Stabilizingcoins? In this regard, "Daily Economic News" reporter interviewed Xiao Wei, director of the Bank of China Law Research Association.

Xiao Wei explained that the stable currency, English name is stablecoins, is a centralized asset mortgage issuing token. The USDT issued by Tether Limited, which was formed by Bitfinex in 2014, is the earliest stable currency. The most stable currency in recent years is Libra. A stable currency is a cryptographic asset that maintains a stable value linked to a target price (such as the US dollar); the stable currency is designed to serve those specific (decentralized) applications that require lower fluctuations in volatility An application that can run on a blockchain. There are currently three types of stable currencies, stable currencies for legal currency mortgages, stable currencies for cryptocurrency mortgages, and unsecured stable currencies. The legal currency mortgage is linked to the legal currency as the name implies. The cryptocurrency collateral is to guarantee the stable currency with another cryptocurrency, and the unsecured stable currency does not have any mortgage support.

What are the policy and regulatory risks currently facing Stabilization Coins? In this regard, Xiao Wei said:

“The central bank’s news mentioned that stable coins need to address risks in areas such as anti-money laundering, counter-terrorism financing, consumer protection, and market integrity. In fact, these risks are not unique to stable currencies. Other digital currencies also have these risks. In other words, the previous tradition The policy and regulatory risks faced by the type of digital currency will also be met by the stable currency."

“The essence of stable currency is decentralized digital currency. The issuer’s credit risk is still the most deadly. In the absence of supervision, the stable currency issuer may use the raised legal currency funds for high-risk investment activities, in addition to It is possible to spam, over-stabilize the currency, affect the stability of the stable currency, and the issuer's credit risk is natural. Even if it is 'stable', the risk is not easy to eliminate."

“Secondly, the stable currency also faces the risk of system environmental safety issues. The security, efficiency and integrity of the payment system, network security and operational recovery capabilities are all needed to stabilize the currency. If it is not possible to create a safe environment, its stability The meaning ceases to exist and it is easy to collapse."

Stabilizing coins also face the risk of regulatory uncertainty. Very often, a stable currency has not been regulated by the agency at first, and it is suddenly regulated by the regulator or stopped by the regulator. Even even if it is regulated, It will be considered illegal. If there is uncertainty in the legality of the stable currency, it will make it 'stable'."

Xiao Wei concluded that “the policy and regulatory risks of stable currency are generally derived from two aspects: one is the potential risk of fraudulent, money laundering, etc., which is a decentralized digital currency. The other is the more The stricter regulation comes. These two aspects are the two sides of the problem of stabilizing the currency. If the stable currency really wants to 'stable', then it must accept strict supervision to remove its inherent risks."