The Bank of England advises on limits on Stablecoins
Rattled by the collapse of Silicon Valley Bank, the crypto winter of 2022, and nervous about the prospect of crypto-assets becoming widely used as payment instruments, the Bank of England (BoE) is calling for restrictions on stablecoins for unsupported payments. by liquid capital.
On the heels of the February call for consultation on the use of cryptocurrency issued by the British financial regulator HM Treasury (HMT), entitled “Future Financial Services Regulatory Regime for Cryptoassets” Deputy Governor of the Bank of England, Jon Cunliffe, called for restrictions on the use of stablecoins for payments on a large scale until a regulatory framework is in place.
As Reuters reported on Monday (April 17), Cunliffe said at the Innovate Finance conference for UK Fintech Week that “Systemic stablecoins need to be backed with high quality and liquid assets,” adding that “these could include either deposits at the Bank of England or highly liquid securities, or a combination of the two. We are currently considering which of these options is most appropriate.”
Reflecting on recent failures of the mainstream banking system and uncertainty surrounding crypto for payments, Reuters reported: “At least initially, it would not be possible to protect stablecoin deposits in the event of failure using the industry-funded scheme that protects sterling bank deposits of up to 85,000 pounds ($105,451.00), Cunliffe said.”
While citing risks surrounding the use of stablecoins for payments that are manageable over time, Cunliffe said the caveat is “We cannot know with certainty the extent and speed at which payment stablecoins may be adopted, and we may well need limits, at least to to begin with, to ensure we avoid disruptive changes that could threaten financial stability.”
In its consultation and call for evidence in February, HM Treasury said: “The Government is currently legislating in the Financial Services and Markets Bill 2022 (FS&M Bill) to introduce a regime that will allow for the regulation of fiat-backed stablecoins used for payments, similar to for other payment methods (phase 1) given that these stablecoins have the potential to be widely used as a form of payment.”
It continued: “The regime will address issuance and custody activities related to fiat-backed stablecoins as well as payment-related activities for the fiat-backed stablecoins used in payments. The scope of this is expected to cover, as a minimum, GBP and other fiat-backed stablecoins issued in the U.K. The Bank of England and the Payment Systems Regulator (PSR) will also have a regulatory mandate for Digital Settlement Assets (DSA).”
