Breaking News
Investing Pro 0
Cyber Monday Extended SALE: Up to 60% OFF InvestingPro+ CLAIM OFFER

BoE says 'stablecoin' payments need same rules as banks

Economy Jun 07, 2021 07:57AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: A general view shows The Bank of England in the City of London financial district in London, Britain, November 5, 2020. REUTERS/John Sibley/File Photo

By David Milliken and Tom Wilson

LONDON (Reuters) -The Bank of England said on Monday that payments with 'stablecoins' - a form of cryptocurrency usually pegged to a traditional currency - should be regulated in the same way as payments handled by banks if they start to become widely used.

The central bank also said it had made no decision yet about whether to issue its own central bank digital currency, or CBDC, a prospect dubbed 'Britcoin' by finance minister Rishi Sunak when he asked the BoE to look into this in April.

"The prospect of stablecoins as a means of payment and the emerging propositions of CBDC have generated a host of issues," BoE Governor Andrew Bailey said. "It is essential that we ask the difficult and pertinent questions when it comes to the future of these new forms of digital money."

Stablecoins are cryptocurrencies designed to have a stable value relative to traditional currencies or to a commodity such as gold, to avoid the volatility that makes bitcoin and other digital tokens impractical for most commerce.

None have gained much traction in day-to-day commerce, but a proposal by Facebook (NASDAQ:FB) in 2019 to create a digital currency for use on its platforms alarmed financial regulators.

If digital currencies become big enough to have an impact on financial stability, they would require greater regulation than at present, the BoE said.

"Stablecoins used as money should meet equivalent standards as those provided by commercial bank money, otherwise known as bank deposits," the BoE said. Stablecoin issuers would need to meet capital and liquidity rules, and offer deposit insurance.

The BoE is among major central banks across the world revving up work on issuing digital cash, a move aimed at fending off potential threats to traditional money and making payments systems smoother.

The People's Bank of China is leading the charge, and the U.S. Federal Reserve last month said it would accelerate its work on a digital dollar.

CHALLENGE FOR BANKS

BoE Deputy Governor Jon Cunliffe said last month there was a good case for the BoE to issue its own digital currency, as any private-sector alternative could be dominated by one or two big companies, with cost and privacy implications.

Richard Hay, head of fintech at law firm Linklaters, said he believed the BoE was edging towards issuing digital currency.

"The devil will be in the use-cases: explaining to consumers why they should use it, and why banks and other institutions should support it," he said.

As part of Monday's discussion paper, the BoE modelled a scenario under which a fifth of money currently held as retail deposits with British banks instead was held in new forms of digital currency such as stablecoins or a CBDC.

Such a shift would push up banks' funding costs and raise the interest rates they charged by about 0.2 percentage points, but could create cheaper sources of finance for some borrowers, it said.

Overall, the BoE concluded the impact on lending rates and credit provision was likely to be "relatively modest".

Demand for digital cash was hard to predict, the BoE said. Though the Bahamas last year became the first country to launch a CBDC nationwide, no major economy has yet made a similar move.

Greater convenience, trust and safety compared with standard payment methods could drive uptake of digital currencies, the BoE said. Although these could compete with rates of return offered on commercial bank deposits, this may have a relatively small impact on flows away form the banking system, it added.

Still, a reluctance to shift towards the technology and its complexity may stifle movement towards new forms of digital money, the BoE said.

BoE says 'stablecoin' payments need same rules as banks
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
sam chan
sam chan Jun 07, 2021 8:41AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Castration for stray animal
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email