‘Stablecoin’ must be regulated like banks, says Bank of England

The central bank defines stablecoin as digital tokens issued by the private sector which aim to avoid the volatility usually associated with crypto and move in lockstep with government-backed currencies.

To be deemed systematic, stablecoins are expected to be stable in value at all times and offer 1-to-1 redemption with a robust legal claim.

Governor of the Bank of England, Andrew Bailey, says: “We live in an increasingly digitalised world where the way we make payments and use money is changing rapidly. 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. It is essential that we ask the difficult and pertinent questions when it comes to the future of these new forms of digital money.” 

In a paper released monday, the Bank of England said that companies offering stablecoins should not enjoy “regulatory arbitage” through looser rules than traditional banks.

The paper highlights the need for regulation for stablecoins before it is operating in the UK. The Financial Policy Committee previously set out two expectations for systematic stablecoins. The first addressed the financial stability risks associated with the payment functionality of stablecoins, and the second being its use as money.

The bank explained that stablecoins used as money should meet equivalent standards as those provided by commercial bank money, otherwise known as deposits. 

”The Bank’s view is that, to meet this second expectation, a core set of features of the current banking regime need to be reflected in any regulatory model for stablecoins. These models include capital requirements, liquidity requirements and support from a central bank, and a backstop to compensate depositors in the event of failure,” said the bank in a news release.

The Bank reiterates that it has not made a decision around CBDC but is actively exploring the opportunities and risks of doing so.