Bank of England official says stablecoin use may need limits

BLOOMBERG

Bank of England (BOE) 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 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.
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.
“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.”