The UK was left reeling this week by the revelation that Rishi Sunak intends to turn the UK into a “global hub” for crypto assets.
Among a flurry of shock announcements – which included a commitment to launch an official Treasury NFT later this year – the government confirmed its intention to recognise stablecoins as a valid form of currency in the UK.
Confirmation that stablecoins, digital assets which are typically pegged to the value of fiat currencies such as the dollar, will be integrated into the UK’s payments system is a sign that the Treasury is sold on the potential of the new technology.
“It’s the most innovative thing that has ever faced financial services,” said Tony Craddock, the director general of the Payments Association, an industry body co-leading a pilot scheme for a UK stablecoin linked to the value of sterling.
“The thing that’s exciting about a stablecoin is that it’s a very secure type of money,” he continued, explaining that digital assets have a transparent audit trail which can help to prevent financial crime.
Stablecoins also reduce the costs associated with cross border payments and are programmable, meaning conditions can be imposed on transactions Craddock said. A consumer making a purchase online, for instance, could ensure their payment is only received by the sender once the item is delivered.
“You can instil some control over the sending or accepting of money which have never been done before,” he added.
For Craddock stablecoins, which aim to offer a secure store of value for investors, have a much clearer role to play in a future payments system than crypto assets such as Bitcoin and Ethereum which are renowned for their price volatility.
However, detractors – including the Bank of England’s governor Andrew Bailey – have questioned claims that stablecoins are backed securely.
The world’s largest stablecoin Tether, a dollar-linked token with a market cap of $82bn, has been at the centre of a controversy concerning the location of its reserve funds. Last October, Tether was fined $41m by the US’ financial regulator for incorrectly claiming that each USDT token was backed by audited dollar reserves.
The Treasury said that regulation will ensure stablecoins can be used with confidence by UK consumers, but has offered scarce details about which tokens will be approved for use.
“What does the future of crypto here in the UK look like? No-one knows for sure,” said Financial Services minister John Glen at the Innovate Finance conference on Monday.
He added hopefully that an open environment for digital assets in the UK could give rise to “a wave of ground-breaking new products and services.”