A Group of Seven (G7) report has stated that Facebook must not proceed with its Libra cryptocurrency until it proves that it is safe and secure.
G7, the world's biggest economies, warned that cryptocurrencies, such as Libra from social media company Facebook, pose safety and security risks to the global financial system. The report pointed out that even if backers of Libra would be able to address concerns, it may not receive approval from regulators.
The G7 warning follows the decision of payments companies Mastercard and Visa to leave the Libra project due to regulatory uncertainty. Paypal left the Libra alliance a week before.
The report was produced by a G7 taskforce comprised by senior officials from central banks, the International Monetary Fund (IMF) and the Financial Stability Board, which coordinates rules for the G20 economies.
The taskforce also emphasized on the need for backers of digital currencies to be be legally sound, protect consumers and ensure that these currencies are not used to launder money or fund terrorism. While the report did not specify Libra in particular, it noted that "global stablecoins" with the potential to "scale rapidly" pose a range of potential problems.
It argued that unlike other cryptocurrencies, such as Bitcoin, stablecoins like Libra pose more risk because they are pegged to established currencies such as the dollar and euro. The report will be presented to finance ministers at the IMF annual meetings this week.
The report stated: "The G7 believe that no stablecoin project should begin operation until the legal, regulatory and oversight challenges and risks are adequately addressed. Addressing such risks is not necessarily a guarantee of regulatory approval for a stablecoin arrangement."
Meanwhile, a separate FSB report focused on regulatory challenges that the introduction of "global stablecoins" poses. Randal Quarles, FSB chairman, wrote to G20 finance ministers, warning them that these challenges "should be assessed and addressed as a matter of priority".
