Bank of England sets high bar for stablecoin regulation

The Governor of the Bank of England, Andrew Bailey, highlighted the need for distinct regulatory approaches for bitcoin and stablecoins, with a particularly stringent standard for the latter.

Bailey, speaking at The University of Chicago Booth School of Business in London, acknowledged the ongoing examination of a central bank digital currency (CBDC) while addressing the evolving landscape of financial market activity and its implications for stability.

During a Q&A session, Bailey addressed the lack of clarity in the global crypto regulatory environment, especially in light of the U.S. political climate and the election of pro-crypto President Donald Trump. He noted that the previous U.S. administration led by President Biden and the Securities and Exchange Commission (SEC) struggled to establish a consistent regulatory framework for cryptocurrencies, often resorting to court actions.

Bailey differentiated between the unbanked crypto world, which he referred to as the "bitcoin style," and the realm of stablecoins. He described the former as pure investment risk due to its volatility and not akin to traditional money.

Bailey expressed that his perspective on cryptocurrencies had evolved, recognizing that people may include them in their investment portfolios as long as they comprehend the associated risks.

Stablecoins, according to Bailey, perform some monetary functions, particularly in payments, and are backed by assets, unlike bitcoin. However, he also pointed out that stablecoins share similarities with mutual funds and lack transparency. Due to their role in the payments system, Bailey emphasized the necessity for sensible regulatory standards for stablecoins.

The Bank of England continues to explore the potential of a CBDC, referred to as a "digital pound." Bailey compared the innovation in digital payments to the introduction of the iPhone, stressing the importance of recognizing the benefits of digital technology in payments. He posed questions about the necessity of creating a new form of central bank money and whether it could be integrated into the existing commercial bank payment systems.

In January, the Bank of England announced the launch of a "Digital Pound Lab" slated for later this year, which will contribute to the design phase of a prospective CBDC. This initiative is part of the bank’s efforts to assess the advantages of implementing digital technology in the payments sector and determining the need for a CBDC.

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