Global central bank test lab building stablecoin monitoring system

Global central bank test lab building stablecoin monitoring system

The Bank for International Settlements (BIS), the central bank for the world’s central banks, is developing a stablecoin monitoring system in its London lab to provide guidelines for future regulations.

Stablecoins are digital currencies that are pegged to a reference asset like commodities or fiat money, like the U.S. dollar. The BIS is designing a tool that will allow regulators to keep tabs on them to ensure proper control.

The BIS aims to have conducted preliminary tests and simulations on a predetermined sample size of stablecoins and their respective balance sheets by the end of this year.

While central banks worldwide have been working on programs to test digital versions of sovereign currencies (CBDC), the stablecoin project is a first and demonstrates a rising worry among regulators.

Although some central bankers consider CBDCs a more secure alternative to volatile private cryptocurrencies, stablecoins offer greater stability and, thus, can better serve as the foundation for decentralized finance (DeFi) applications, which regulatory authorities have yet to figure out how to oversee.

The BIS explained that most central banks do not have the resources to systematically keep an eye on stablecoins and prevent asset-liability mismatches.

The project, named “Pyxtrial” after an old legal ceremony in Britain to ensure newly minted coins meet the standards, will help authorities “build policy frameworks.” In particular, the project aims to increase transparency regarding the underlying assets that stabilize the currencies.

The BIS, made up of 63 central banks, has test labs worldwide working on 15 different CBDC trials. The release for the project also reveals that the BIS is also working on DeFi and other crypto-monitoring systems.

In October, the Financial Stability Board (FSB), which oversees financial regulations within the Group of 20 Economies (G20), issued recommendations to increase control of the cryptocurrency sector.

Despite threats of crimes involving crypto assets, such as money laundering and terrorism funding, the cryptocurrency industry is largely unregulated in most countries.