Any Stablecoin Breakdown Could Spill Over Into Financial System, FSB Says — Market Talk
A hypothetical run on a global stablecoin could potentially spill over to the traditional financial system as the sectors become increasingly dependent on each other, an international body monitoring financial stability says. Stablecoins are digital tokens pegged to the U.S. dollar or other currencies. Damage could spread via reserve-asset fire sales and banking deposit withdrawals to fund redemptions, as well as in foreign exchange markets where they are used for cross-border transactions, the Financial Stability Board wrote in an Oct. 12 report. "In stress, round-the-clock access to and the speed of trading on secondary markets may increase the potential speed and magnitude of sell offs, putting pressure on the stablecoin's peg if redemptions cannot keep up with demand," the FSB says. ([email protected])