In a recent media interaction, the governor of the Bank of England (BoE), has commented on the stablecoins. He believes that stablecoins need to be properly regulated and supervised to ensure financial stability.
Addressing the press at the Institute of International Finance in Washington, Andrew Bailey, governor of the BoE, said that stablecoins should be regulated in the same way as fiat money. He said that stablecoins lack an “assured value,” which is one of the primary features that investors look for when putting their money in this type of “digital money” that seeks to resemble fiat.
The governor adds that because of the lack of value, the country needs to focus on providing a proper, strict regulatory framework that should be similar to that of traditional financial products. Quoting him:
As we have seen, they [the stablecoins] do not have assured value, and in the work, we have done at the Bank of England we have concluded that the public should expect assured value in digital money, and confidence in this is needed to underpin financial stability.
He also warned that stablecoins must meet the same characteristics and regulations as real money in order to function efficiently as such and such a situation has not yet happened with any stablecoin.
Bailey also acknowledged the recent banking collapse of Silicon Valley Bank, which affected thousands of investors in the US. He said that the regulators must consider all appropriate liquidity buffers to respond to any banking crisis or a bank run.
The British central bank governor in particular is known to be one of the critics of the digital assets sector including CBDCs. In June last year, following the collapse of the stablecoin terra USD (UST) and terra (LUNA), he claimed that crypto has no intrinsic value. Notably, the crash also led to disturbing the Treasury Department of the UK as it affirmed the regulation of stablecoins after the incident.
Considering the current regulatory scenario of the UK wherein the prime minister Rishi Sunak has expressed desires to make the country a crypto hub but has been baffled by the regulator’s stance. The FCA and BoE have shown their resistance towards crypto and the bank also predicted the crypto assets could go down to zero.
However, in January, Andrew Griffith, Member of Parliament and HM Treasury Economic Secretary announced the launch of a wholesale stablecoin and the Financial Markets Infrastructure (FMI) sandbox. In the “long runtime” preceding the probable launch of a central bank digital currency (CBDC), Griffith predicted that a stablecoin would serve as the initial application of what is expected to be a wholesale settlement coin.
While the regulation of stablecoin has been a topic of discussion among regulators for several years, they have not yet reached an agreement on the necessary steps to protect investors. Some experts see the reason for this as the regulator’s choice of highlighting stablecoins as mere means of money laundering and unsafe investment over the potential it holds.
In the case of the United States, the regulators have received severe criticism for their excessive focus on stablecoins and attempts to claim them as a security. The Blockchain Association Executive Director Kristin Smith said that US regulators are more focused on the illicit uses of stablecoins, such as money laundering or terrorism financing than their everyday use as digital money.
Additionally, she said that cryptocurrencies are “much more transparent than we see in the traditional financial services system.” She urged the lawmakers to prioritize the crypto market and stablecoins while drafting the regulatory framework.