'Stablecoins must meet bank deposit regulatory standards': BoE

The UK’s central bank has said that stablecoins used as money should meet the same regulatory standards as those provided by commercial bank money or bank deposits.

A ‘stablecoin’ describes digital tokens issued by the private sector which aim to maintain a stable value at all times, primarily in relation to existing national currencies. Their stability of value is what distinguishes them from other digital assets using new technologies.

In a discussion paper published today, the Bank of England said that to meet this regulatory expectation, a core set of features of the current banking regime need to be reflected in any governing model for stablecoins.

These models include capital requirements, liquidity requirements and support from a central bank, and a backstop to compensate depositors in the event of failure.

A stablecoin-based payment chain should be regulated to standards equivalent to those applied to traditional payment chains, according to the organisation.

In order for stablecoins to scale up and become widely used as a trusted form of sterling-based retail payments the bank expects them to be stable in value at all times, it said. It also said that stablecoins must offer one-to-one redemption with a robust legal claim.

“We live in an increasingly digitalised world where the way we make payments and use money is changing rapidly,” said Andrew Bailey, governor of the Bank of England. “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.
Bailey added: “It is essential that we ask the difficult and pertinent questions when it comes to
the future of these new forms of digital money.”

Future of Central Bank Digital Currencies

The Bank also summarised responses to a March 2020 discussion paper on Central Bank Digital Currencies (CBDCs.)

It said that respondents showed strong agreement that the central bank should, at the very least, be carefully studying CBDC, even if there was a range of views on whether one was ultimately likely to be needed or desirable.

The UK central bank identified several principles for the future of CBDCs.

It found that financial inclusion should be a prominent consideration in the design of any CBDC.

It was also revealed that a competitive CBDC ecosystem with a diverse set of participants could support innovation and offer the best chance to deliver the benefits of CBDC.

The discussion paper suggested that in assessing the case for a CBDC, the Bank should assess whether non-CBDC payment innovations could deliver the same benefits.

As well as this, the industry response suggested that a CBDC should seek to protect users' privacy.

While the currency should “do no harm” to the bank’s ability to meet monetary and financial stability, it said, opportunities to meet its policy objectives more effectively should also be considered in CBDC exploration.

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