FSB Says Stablecoins Might Speed, Cheapen X-Border Payments

The Financial Stability Board (FSB) is looking at stablecoins as one way of achieving its goal of cutting the cost and time required to make cross-border payments.

The FSB said in a Monday (Oct. 10) report that it is “considering whether and how the use of well-designed and risk-managed [stablecoin arrangements] could enhance cross-border payments by addressing existing frictions, what opportunities and challenges this would entail, and how this could impact central banks’ core functions.”

A report on those questions is due by the end of the year.

Among those frictions, it said, are “long transaction chains, legacy technology platforms, fragmented and truncated data formats, and, depending on their design, funding costs.”

It added that the potential to introduce new risks requires a careful weighing of the tradeoffs, and that the need to make different jurisdictions’ legal and regulatory frameworks compatible would be difficult. Among the most difficult of those would likely be the large economies that have already banned payments stablecoins, most notable China and India.

See also: How the Digital Euro Can Help Address Disintermediation, Sovereignty Issues

The European Central Bank (ECB), a strong proponent of central bank digital currencies (CBDCs), recently weighed those tradeoffs and came to the conclusion that stablecoins were nearly as bad as bitcoin, which it called the “least credible” option.

Read more: ECB Says CBDC Could Be ‘Holy Grail’ for Cross-Border Payments

That came following a July report by Reuters that said several central bankers favored stablecoins over CBDCs, with Australia’s Philip Lowe saying he tends to “think that the private solution is going to be better — if we can get the regulatory arrangements right — because the private sector is better than the central bank at innovating and designing features for these tokens.”

See more: Some Central Bankers Signal Support for Private Sector Digital Currencies Over CBDCs

However, the FSB stressed that it was talking about “well-designed and risk-managed” stablecoin arrangements, and that they “must be subject to effective regulation and oversight commensurate to the risks they pose, both at the domestic and international level.”

Back in February, the FSB told national regulators to move faster to set stablecoin regulations.

Read more: FSB Tells National Regulators to Move Faster on Stablecoin Regulation

One and One

A year ago, the FSB set goals to make cross-border payments faster, cheaper and more transparent, as well as more inclusive. These divided them into three areas: wholesale, retail (B2B, B2P, P2B and P2P) and finally remittances. With the exception of the cost goals for remittances, all targets should be met by 2027, the international financial standards setting body said.

In all cases, 75% of payments should be credited within one hour and the remainder with one business day.

For wholesale cross-border payments, no cost target was set. All financial institutions (FIs), including those focused on remittances, in all payments corridors should have at least one and if possible more options for sending and receiving cross-border payments.

Retail payments should have a global average cost of no more than 1% of the transaction and no higher than 3% anywhere. All end-users, including individuals, businesses and banks, would have at least one infrastructure or provider available for sending and receiving payments.

As far as remittances, the FSB reiterated its support for the U.N.’s Sustainable Development goal of setting the average cost of a $200 remittance to 3%, with no corridor more than 5%, by 2030.

On the transparency front, all payment sectors have the same goal for the end of 2027: All payment service providers (PSP) would offer, at a minimum, the “total transaction cost (showing all relevant charges, including sending and receiving fees including those of any intermediaries, FX rate and currency conversion charges); the expected time to deliver funds; tracking of payment status; and the terms of service.”

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