(Adds Libra comment; paragraphs 7-9)
By Tom Wilson and Balazs Koranyi
LONDON/WASHINGTON, Oct 17 (Reuters) - Facebook's plans to launch its Libra cryptocurrency faced a new hurdle on Thursday, when the Group of Seven wealthy nations said such "stablecoins" should not be allowed to launch until the profound international risks they pose are addressed.
When launched on a wide scale, stablecoins - digital currencies usually backed by traditional money and other assets - could threaten the world's monetary system and financial stability, a G7 working group said in a report to finance ministers gathered in Washington for the IMF and World Bank fall meetings.
The emerging technology, which is now mostly unregulated, like other cryptocurrencies, could also hinder cross-border efforts to fight money laundering and terror financing, and throw up problems for cyber security, taxation and privacy, the report said.
"The G7 believes that no global stablecoin project should begin operation until the legal, regulatory and oversight challenges and risks" are addressed, said the task force, chaired by European Central Bank board member Benoit Coeure.
"Private sector entities that design stablecoin arrangements are expected to address a wide array of legal, regulatory and oversight challenges and risks," the report added.
The report underscores concern among global policymakers about stablecoins such as Libra, and presents a further headache for Facebook's project after a chastening week.
In response, the Libra Association that backs the cryptocurrency effort said it was committed to working with regulators.
Libra was designed to respect national sovereignty over monetary policy, as well as rules against money laundering and other efforts to stop illicit finances, it said in a statement.
"Libra is being designed to work with existing regulatory institutions and apply the protections they provide to the digital world - not disrupt, or undermine, them," it said.
Amid sharp regulatory scrutiny, the 21 firms backing Libra pledged on Monday to forge ahead with the project, shrugging off the defection of a quarter of its original members, including payments giants Visa and Mastercard, this month.
STABLECOINS AND PAYMENTS
In June, Facebook unveiled Libra, a form of stablecoin backed by currencies from the dollar to the euro and government debt, in one of the most high-profile attempts to draw cryptocurrencies into the banking and corporate establishment their creators sought to subvert.
Stablecoins aim to overcome the extreme volatility that plagues cryptocurrencies and makes them impractical for commerce and payments.