The Bank of England says stablecoins used as money would be expected to face the same regulatory standards as those attached to bank deposits.
The central bank's views were expressed in a Discussion Paper which aims to broaden the debate around new forms of digital money. It comes as the BofE prepares to rev up its own exploration of the implications of introducing a central bank backed digital currency (CBDC), or Britcoin in popular parlance..
The Bank defines a stablecoin 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".
For all stablecoins deemed as systemic, the Bank’s expectation is for them to be stable in value at all times and offer 1-to-1 redemption with a robust legal claim.
Governor of the Bank of England, Andrew Bailey, says: “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.”
To meet expectations, a core set of features of the current banking regime need to be reflected in any regulatory model for stablecoins, says Bailey. These models include capital requirements, liquidity requirements and support from a central bank, and a backstop to compensate depositors in the event of failure.
States the Bank: "Regulation lays the groundwork for innovation and needs to be clearly established before a systemic stablecoin could safely operate in the UK."
On the issue of CBDC, the Bank outlines the responses to a Discussion Paper on the subject that was circulated in March last year. Privacy, financial inclusion and the competitive environment all featured highly.
Respondents agreed the Bank should provide the minimum level of infrastructure for the system to be reliable, resilient, fast and efficient, with the private sector taking a leading role in responding to the needs of the end users.
States the Bank: "The feedback we received has encouraged the Bank of England to continue examining the case for a CBDC. But at the same time, the Bank received clear feedback that the ‘use case’ for a CBDC, which might justify its introduction, needed further research, refinement, and articulation, to inform a comprehensive assessment of the pros and cons of what would be a major decision. Additionally, some respondents expressed doubt that a CBDC was needed at all, given they considered that the intended benefits could be achieved through other forms of payments innovation."