The Bank of England (BoE) will consider whether to put limits on stablecoins used for payments in new rules for the sector, Deputy Governor Jon Cunliffe said in a speech on Monday.
The BoE and the Financial Conduct Authority plan on consulting on new rules for stablecoins later this year, Cunliffe said. Last May the bank said it will regulate stablecoins that could have an impact on financial stability. Meantime, the Financial Services and Markets Bill, which will help regulators put in place rules for crypto and bring stablecoins under existing payment legislation, is nearing its final stages in Parliament.
“While, from a public policy perspective, we want competition and innovation in payments we need to guard against rapid, disruptive change that does not allow the financial system time to adjust and could therefore threaten financial stability,” Cunliffe said at the annual Innovate Finance Global Summit.
The new rules will look to regulate stablecoins like commercial bank money, “including the requirement that the coins should be redeemable from the stablecoin arrangement, in fiat money, at par value and on demand,” Cunliffe said. Stablecoins, however, will not receive protection against failure in the same way that commercial bank deposits do. The Financial Services Compensation Scheme (FSCS) provides deposit insurance of up to 85,000 pounds (US$105,059) for bank customers.
The stablecoin rules will follow principles established by the Bank for International Settlements' Committee on Payments and Market Infrastructure and the International Organization of Securities Commissions last year, Cunliffe said.
New ledger technology that powers crypto could also make way for digital bank notes issued by central banks, or tokenized bank deposits, Cunliffe said. These could use smart contracts to settle transactions. He stressed the importance of developing an approach for tokenized bank deposits alongside the stablecoins regime.
"This will allow banks and nonbanks alike that want to develop payment solutions using new technologies to understand clearly what is possible and what is required in the respective regulatory regimes," Cunliffe said.
The bank, which is also exploring a digital pound, is looking at how it can ensure tokenized transactions settle in central bank money. One way forward would be to develop a ledger system, he said.
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