The entire stablecoin market is now worth more than $100 billion.
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Regulators may need to impose restrictions on the use of stablecoins in payments to prevent potential threats to financial stability, a Bank of England official warned on Monday.
“The Bank of England’s assessment is that financial stability risks should be manageable over time, including risks from the impact on the banking system,” said Jon Cunliffe, Deputy Governor of the Bank of England, in a speech at Innovate Finance Global London Summit.
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“But we cannot know with certainty the scale and speed at which payment stablecoins might be introduced, and we may need limits, at least initially, to ensure we avoid disruptive changes that could threaten financial stability.”
That would have a significant impact on stablecoins like Tether’s USDT, Circle’s USDC, and Binance’s BUSD.
Stablecoins are cryptocurrency tokens that aim to mirror the value of traditional assets such as fiat currencies. Regulators are concerned about the assets that underpin their value and the potential risks they may pose to the financial system as they become major competitors for fiat money.
The volatility in the crypto markets raised questions about how stable such tokens really are after the value of TerraUSD, a so-called algorithmic stablecoin, fell to almost zero cents as investors withdrew their funds fearing the technical model behind the token lies, deducted.
Unlike commercial bank funds, which are protected by deposit insurance up to £85,000 ($105,100), there is currently no framework for consumer reimbursement in the event of a stablecoin default. Cunliffe said this reinforces the need to ensure that the assets behind a stablecoin “are of sufficient value at all times to satisfy redemption requests.”
Cunliffe said that “systemic stablecoins,” or tokens that pose risks to the financial system, need to be backed with highly liquid assets to ensure holders can easily withdraw their funds.
Such assets could include deposits with the Bank of England “or very liquid securities,” he added.
The UK government is deliberating on new regulations to address the risks of digital currencies for consumers, while trying to ensure the country is seen as a place for crypto firms to do business.
The Financial Services and Markets Bill, which is currently moving through the UK Parliament, already has some cryptocurrency provisions. This specific law, which is not yet in effect, aims to bring asset-backed stablecoins into the regulator.
Prime Minister Rishi Sunak is a well-known crypto supporter who earlier last year pledged to turn the UK into a “crypto hub” in his capacity as Boris Johnson’s finance minister.
The UK is also exploring the possibility of issuing a digital version of the British pound. The Bank of England said in February that it was “likely” that Britain would need a central bank digital currency if current trends surrounding the decline in cash usage continue.
Cunliffe reiterated that goal Monday, saying that a CBDC “is likely to be needed if current trends in payments and money… continue.” He pointed to the risk of cash usage continuing to decline and more non-bank actors issuing their own digital coins.
The Bank of England, UK Treasury and industry are debating concerns about how such currencies would be implemented, such as B. the privacy of those who do business with them and the impact on financial stability.
REGARD: How stablecoins became the backbone of crypto
