Bank of England paper provides stablecoin regulatory stance

A Bank of England (BofE) paper has highlighted that stablecoins used as money should be expected to face the same regulatory standards as those attached to bank deposits.

According to the central bank, the paper aimed to broaden the debate around new forms of digital money. The bank is currently preparing to examine the implications of the introduction of a central bank-backed digital currency.

The bank currently defines stablecoins as ‘digital tokens issued by the private sector which aim to maintain a stable value at all times, primarily in relation to existing national currencies’.

The BofE underlined that for all stablecoins deemed as ‘systemic’, its expectation is for them to remain stable in value at all times as well as offering 1-to-1 redemption with a robust legal claim.

The bank stated, “Regulation lays the groundwork for innovation and needs to be clearly established before a systemic stablecoin could safely operate in the UK.”

Bank of England Governor Andrew Bailey said, “We live in an increasingly digitalised world where the way we make payments and use money is changing rapidly. The prospect of stablecoins as a means of payment and the emerging propositions of CBDC have generated a host of issues that central banks, governments, and society as a whole, need to carefully consider and address. It is essential that we ask the difficult and pertinent questions when it comes to the future of these new forms of digital money.”

Bailey added that to meet expectations, a core set of features of the current banking regime must be reflected in any regulatory model for stablecoins. These models include capital requirements, liquidity requirements, central bank support and a backstop to compensate depositors in the event of failure.

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