The Deputy Governor of the Bank of England, John Cunliffe, admitted that, with a high degree of probability, regulators will be forced to introduce restrictive measures regarding the possibility of using stablecoins to perform payment financial operations.
The Deputy Governor of the Bank of England noted that currently, politicians are trying to establish a balance between the need for innovation and related problems. John Cunliffe also believes that the accelerated implementation of innovative solutions in the payment sector may cause the emergence of new risk factors for customers and financial markets in general.
On Monday, during a speech at an event organized by the fintech industry organization Innovate. Finance, Deputy Governor of the Bank of England said that from the point of view of public policy, competition, and innovative transformation are priorities and necessary processes. But at the same time, he noted that changes should not be too fast, since the excessive intensification of the introduction of advanced solutions can have a devastating impact on the financial system and its stability due to the lack of time needed to adapt to innovations.
John Cunliffe said that regulators will have to answer the question about the need for restrictions, at least at the initial stage, concerning stablecoins that are used to make payments.
Stablecoins issued by non-bank companies are tied to the value of the asset. They are designed to maintain a stable value, unlike cryptocurrencies, when using ledger technology to record and transfer ownership.
John Cunliffe noted that until now, stablecoins have been used to facilitate trading and other transactions in the field of cryptocurrencies, but proposals have already been voiced to expand the scale of turnover of this currency. He also stressed that stablecoins can increase the level of efficiency and functionality of payments, but so far they do not fit into any regulatory framework. The existing payment systems and money issued by commercial banks are under the control of regulators.
If will expand the scope of use of stablecoins, the corresponding deposits will not receive protection at the initial stage in case of failure.
John Cunliffe said that the bill on financial services and markets, which is currently under consideration by parliament if adopted, will empower banks to regulate operators of system stablecoins. The plans of the Bank of England provide that the same standards will be applied to this currency, based on which the regulation of traditional payments and money of commercial banks is carried out.
The Deputy Governor of the Bank of England said that systems of stablecoins should be backed by high-quality and liquid assets to guarantee the possibility of their exchange for fiat money on demand. According to him, these can be either deposits with the Bank of England, securities with high liquidity, or a combination of the first and second.
John Cunliffe also stressed that the Bank of England is aware of the potentially transformative effect of tokenization of financial assets, atomic settlements, smart contracts, and other new technologies in the wholesale financial markets. He stated that the financial institution develops both a regulatory framework and public money, which means safe innovation for the benefit of all.
As we have reported earlier, Bank of England Builds Its CBDC Team.