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The Bank for International Settlements (BIS) has said regulation could be embedded into private global stablecoins, such as Facebook’s Libra, in a bid to ensure effective regulation while also recognizing the potential of the technology for payments.

In a recently published working paper, the BIS distinguished between stablecoins that are centralized and those that are decentralized, noting that the launch of something like Libra could see hundreds of millions of users switching quickly.

This, the report noted, could present challenges for regulators of decentralized stablecoins like Libra, forcing quick responses to tackle the potential for explosive worldwide growth.

According to the paper, protecting consumers, the monetary system and wider economies “does not preclude public authorities themselves from embracing innovation”, noting the technology could lead to increased supervision, or “embedded supervision” within the stablecoins themselves.

“Direct automated provision of data as a licensing or registration requirement for digital payment systems and markets provides an important opportunity to better use technology to achieve regulatory and supervisory objectives as well as reduce costs for market participants.”

The BIS paper goes on to suggest that for many of the functions delivered by decentralized stablecoins, centralized stablecoins, such as central bank digital currencies, may be more effective.

Nevertheless, the paper recommends embedding regulatory objectives into licensing decentralized stablecoin systems, which it says could lead to better compliance outcomes, as well as meeting the challenges of a rapid consumer uptake.

The report highlights the latest thinking from academics at the Bank for International Settlements, at a time when stablecoins and central bank digital currencies are nearing closer to mainstream global use.

With private stablecoins like Libra championed by Facebook, and central bank digital currencies already at an advanced stage of development in China and elsewhere, it looks likely national regulators will be dealing with these challenges in the immediate future.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

See also: CoinGeek Live panel on The Future of Banking, Financial Products & Blockchain

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