- The Bank of England proposes a regulatory regime for stablecoins and other systematic payment systems.
- Stablecoins are categorized as the new form of recent innovation in payments.
The Bank of England has proposed a regulatory regime as part of the plans to ensure that confidence is maintained in money and payment. According to a report by the BoE, many people in the UK have the potential to use stablecoins for everyday transactions.
The report further stated that operators of systematic payment systems and service providers that have been recognized by the HM Treasury (HMT) are regulated by the authorities. The need for stablecoin regulations is to enable innovators to plan for innovations for safe adoption.
We regulate operators of systemic payment systems, and service providers that provide essential services to these after these have been recognized by HM Treasury (HMT). Recent legislative changes have expanded this remit to capture operators of systemic payment systems that transfer ‘digital settlement assets’ including stablecoins, and related service providers.
According to the report, stablecoins are the new form of recent innovation in payments. They are categorized under the privately issued digital assets meant to maintain stable value against a fiat currency. The Bank of England further stated that a recent legislative change has put stablecoins under their supervision.
Stablecoins Under the New Legislative Change
Under the new legislative change, the bank has new powers to regulate «systemic payment systems», which include stablecoins and related service providers using digital settlement assets. Another important mention is that they focus on sterling-denominated stablecoin.
This regime is intended for business models that are focused on payments-related activities and innovation within payments. It also focuses on retail uses, and proposed limits, if used, would constrain wholesale use of stablecoins at a systemic scale. We consider that unbacked crypto-assets, or any other unbacked digital settlement assets, would not be suitable for widespread use in retail payments in the UK.
The proposed region is to be guided by International standards, and follows the principle of «same risk, same regulatory outcome.» It is stated that systemic payment systems using stablecoin pose similar risks as systemic payment systems. The risks posed by stablecoin are attached to both their innovative use as a form of money and their use as a means of payment.
For now, two forms of money are said to be available in the UK economy namely «outside money», and «inside money». Stablecoins used in the systemic payment systems are said to fall under the» inside money.» This type of money is issued by the private sector such as the commercial Banks. Combinations of regulations and issuers’ access to central bank deposits are used to preserve the value.
According to the BoG report, regulatory clarity enables the benefits of payment systems to be realized.
For the potential benefits of payment systems using stablecoins to be realized, it is necessary to have clarity about the regulatory framework within which they would need to operate. This will enable innovation to flourish in a sustainable way. Safety of sterling payments and confidence in money is fundamental to UK financial and economic stability.
