Monday 7 June 2021 11:55 am

'Stablecoin' payments must be regulated like banks, says Bank of England

The Bank of England has said payments made with ‘stablecoin’ should be regulated in the same way as payments made by banks if they become widely used.

Stablecoins are a type of cryptocurrency usually pegged to a traditional currency and thus are intended to avoid the volatility usually associated with crypto.

“The prospect of stablecoins as a means of payment and the emerging propositions of CBDC have generated a host of issues that central banks, governments, and society as a whole, need to carefully consider and address,” 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.”

The central bank also said it had made no decision whether to issue its own central bank digital currency, dubbed ‘Britcoin’ by Chancellor Rishi Sunak who asked the BoE to look at the idea in April.

The BoE has said that if digital currencies become big enough to have an impact on financial stability they will require greater regulation than at present.

“Stablecoins used as money should meet equivalent standards as those provided by commercial bank money, otherwise known as bank deposits,” the bank said.

The People’s Bank of China is already working on the issue of digital currency, with the US Federal Reserve last month saying it would quicken its work on a digital dollar.

As part of its discussion paper published today, the bank 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.

“As a result of this potential outflow, commercial banks would have to adapt their balance sheets in response to maintain their current liquidity ratio,” the BoE said. “An increase in banks’ funding costs is assumed to increase rates on new bank lending, while some borrowers may find it cheaper to seek credit opportunities in the non-bank financial sector.”

However it said the impact on lending rates and credit provision was likely to be “relatively modest”.