Date: 17 April, 2023
In a statement on Monday, Bank of England Deputy Governor Jon Cunliffe suggested the necessity of imposing initial limitations on the use of major stablecoins for payments. He emphasized the importance of such stablecoins being backed by high-quality and liquid assets to safeguard consumers. The UK is in the process of adopting regulations for stablecoins, a type of cryptocurrency backed by assets or fiat currency, enabling consumers to make digital payments.
Cunliffe, speaking at a conference organized by Innovate Finance, highlighted that systemic stablecoins must be supported by high-quality and liquid assets. Possible options include deposits at the Bank of England or highly liquid securities, or a combination of both, with the central bank considering the most appropriate approach.
He acknowledged that initially, protecting stablecoin deposits in the event of a failure wouldn’t be feasible using the industry-funded scheme that safeguards sterling bank deposits up to £85,000. This underscores the importance of ensuring that the backing assets maintain sufficient value to meet redemption requests, potentially involving capital requirements.
While the Bank of England believes that over time, risks to financial stability from stablecoins can be manageable, Cunliffe expressed uncertainty about the extent and speed of stablecoin adoption. Consequently, he suggested the potential need for limits, at least initially, to prevent disruptive changes that could threaten financial stability.
Key Points:
- Bank of England Deputy Governor Jon Cunliffe advocates for initial limitations on major stablecoins’ use for payments.
- Emphasis on the importance of stablecoins being backed by high-quality and liquid assets to ensure consumer protection.
- The UK is in the process of establishing regulations for stablecoins, a type of cryptocurrency backed by assets or fiat currency, facilitating digital payments.
- Systemic stablecoins should be supported by high-quality and liquid assets, including options like deposits at the Bank of England or highly liquid securities, with the central bank exploring the most appropriate approach.
- Initial protection of stablecoin deposits in case of failure may not be possible using the industry-funded scheme safeguarding sterling bank deposits up to £85,000, highlighting the need for backing assets to maintain sufficient value for redemption, potentially involving capital requirements.
- Bank of England anticipates that, over time, risks to financial stability from stablecoins can be manageable but expresses uncertainty about the extent and speed of stablecoin adoption.
- Cunliffe suggests the potential need for limits, at least initially, to prevent disruptive changes that could pose a threat to financial stability.
References:
https://www.reuters.com/business/finance/bank-england-says-may-need-limits-using-stablecoins-payments-2023-04-17/
https://www.bloomberg.com/news/articles/2023-04-17/bank-of-england-official-says-stablecoin-use-may-need-limits