International Monetary Fund Managing Director Kristalina Georgieva said at the World Economic Forum on Monday that stablecoins not backed by assets are a “pyramid” scheme.
Earlier this month, TerraUSD and sister stablecoin Luna — which are linked to the value of the dollar by algorithms relying upon traders to arbitrage the two coins’ prices — plummeted in value, leading the cryptocurrency market at large to undergo billions in losses.
Georgieva pointed to stablecoins as “the area where the big mess happened.”
“If a stablecoin is backed with assets, one to one, it is stable. When it is not backed with assets, but it is promised to deliver 20% return, it’s a pyramid,” the Bulgarian economist said at a World Economic Forum panel moderated by CNBC. “What happens to pyramids? … They eventually fall to pieces.”
However, Georgieva is in favor of continuing the use of other cryptocurrencies — especially if they are subject to regulation.
“I would beg you not to pull out of the importance of this world,” she continued. “It offers us all faster service, much lower costs, and more inclusion, but only if we separate apples from oranges and bananas,” she said, arguing that regulators around the world must establish safeguards for investors.
Indeed, Americans lawmakers such as Sen. Elizabeth Warren (D-MA) have repeatedly called upon regulators to crack down on cryptocurrencies.
“I have become increasingly concerned about the dangers cryptocurrencies pose to investors, consumers, and the environment in the absence of sufficient regulation in the United States,” Warren told Treasury Secretary and Financial Stability Oversight Council Chair Janet Yellen last year. “However, as the demand for cryptocurrencies continues to grow and these assets become more embedded in our financial system, the Council must determine whether these trends raise concerns beyond investor and consumer protection and extend to broader systemic vulnerabilities that could threaten financial stability.”
Leaders of the World Economic Forum have repeatedly called for coordinated regulation of the global economy.
“Let’s also be clear: the future is not just happening; the future is built by us,” World Economic Forum founder Klaus Schwab said on Monday. “We have the means to improve the state of the world, but two conditions are necessary: The first one, is that we act all as stakeholders of larger communities, so that we serve not only our self-interests but we serve the community. That’s what we call ‘stakeholder responsibility.’”
“And second, that we collaborate,” he continued. “And this is the reason why you find many opportunities here during the meeting to engage into… action and impact initiatives to make progress related to specific issues on the global agenda.”
Schwab has also faced criticism for his calls to leverage the COVID-19 crisis into a “Great Reset” of capitalism.
“To achieve a better outcome, the world must act jointly and swiftly to revamp all aspects of our societies and economies, from education to social contracts and working conditions,” he wrote in June 2020. “Every country, from the United States to China, must participate, and every industry, from oil and gas to tech, must be transformed. In short, we need a ‘Great Reset’ of capitalism.”