The Bank of Italy (Banca d’Italia), called for thorough stablecoin regulations in a report published on June 28.

The central bank described cryptocurrency regulation in general but emphasized a need to regulate stablecoins, which it alleges “have not proved stable at all.”

The bank said that algorithmic stablecoins have “inherent fragility” and added that other stablecoins suffer from price volatility and have speculative uses.

The Bank of Italy cited the collapse of the algorithmic stablecoin TerraUSD (USTC) and a lesser price depeg involving the collateralized stablecoin Tether (USDT) as issues. It said that regulators “cannot fail to take action” in light of these events.

The bank also suggested that the diffusion of stablecoins could promote innovation in the area of decentralized finance (DeFi) and create connections to traditional finance. As such, it said that stablecoin and DeFi regulations should be “well synchronized.”

It suggested that stablecoin issuers stand to gain from regulations that enforce liquidity risk management. It cited the EU-wide Markets in Crypto-assets (MiCA) framework, aimed at ensuring consumer protection and market stability, as an example of this.  Elsewhere, the central bank said that the EU’s payment instruments, schemes, and arrangements framework (PISA) could be extended to stablecoins as well.

The bank also cited a framework from a joint committee of the Bank for International Settlements (BIS) and the International Organization of Securities Commissions (IOSCO), known as CPMI-IOSCO, as a “landmark initiative.” That framework applies to stablecoins pegged to a single currency; it addresses redemption and issuance, storage and exchange, transfers, and governance.

The Bank of Italy said, in the conclusion to its report, that not all cryptocurrencies and activities need to be subjected to financial regulation.

Throughout the report, the central bank distinguished collateralized (or fiat-backed stablecoins) from other crypto-assets. It also noted that in some cases, crypto fraud can be countered through criminal prosecution rather than specific regulation.

The bank nevertheless mentioned other market participants, including intermediary services and DeFi providers, that might need regulation.

The post Italian central bank calls for stablecoin regulations in new report appeared first on CryptoSlate.

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