Bank of England Deputy Governor Jon Cunliffe said regulators may need to impose a limit on using so-called stablecoins for payments as policy makers try to balance the need for innovation with its accompanying concerns.
(Bloomberg) — Bank of England Deputy Governor Jon Cunliffe said regulators may need to impose a limit on using so-called stablecoins for payments as policy makers try to balance the need for innovation with its accompanying concerns.
Cunliffe raised the prospect that rapid innovation in payment systems could bring new risks for customers and financial markets as a whole.
“While, from a public policy perspective, we want competition and innovation in payments we need to guard against rapid, disruptive change that does not allow the financial system time to adjust and could therefore threaten financial stability,” Cunliffe said Monday in a text of remarks at an event hosted by fintech industry body Innovate Finance.
Regulators would need to decide “whether there should be limits, initially at any rate, on stablecoins used for payments.”
Stablecoins, which are currently issued by non-bank businesses, are pegged to the value of an asset. They are designed to maintain a stable value, unlike cryptocurrencies such as bitcoin, while using ledger technology to record and transfer ownership.
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Cunliffe noted that “so far their use has been confined to facilitating trading and other transactions in the world of crypto assets,” but that there were proposals to use them for other, broader payment purposes.
“Stablecoins offer the possibility of greater efficiency and functionality in payments,” Cunliffe said. But they currently do not fit into any regulatory framework, unlike the existing payments systems and money issued by commercial banks.
This would mean that, initially at least, stablecoin deposits would not be protected in case of failure by the industry-funded insurance scheme which protects deposits up to £85,000.
The Financial Services and Markets Bill, currently going through Parliament, will give the Bank powers to regulate operators of systemic stablecoins, Cunliffe said. Under BOE plans, the standards it will apply will be the same as those for traditional payments and commercial bank money.
Systemic stablecoins would also need to be backed by “high quality and liquid assets” to ensure they could be redeemed for fiat money on demand, Cunliffe said.
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“These could include either deposits at the Bank of England or very highly liquid securities, or some combination of the two,” he said. “We are currently considering which of these options is most appropriate.”
His comments came as part of a broader speech on the so-called “tokenisation” of money, which also touched on the Bank and Treasury’s plans to launch a so-called central bank digital currency or CBDC which has been dubbed “Britcoin.”
While most of Cunliffe’s recent speeches, and the consultation paper published by the BOE and the Treasury, have focused on the uses of a CBDC for retail customers, Cunliffe said it was a “misunderstanding of the Bank’s position” to assume that policy makers were no longer exploring its uses for wholesale markets..
“We recognize very clearly the potential transformative effect on wholesale financial markets of tokenisation of financial assets, atomic settlement, smart contracts and other emerging technologies,” he said.
Read more:
- BOE Governor Says Small Bank Depositors Need More Protection (1)
- Digital Pound Could Protect Consumers in Bank Runs, BOE Says
- BOE Official Says Digital Pound Is Big Opportunity for Business
- What’s at Stake for Stablecoins?
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