By Michael Scott
The Bank of England (BoE) Governor Andrew Bailey acknowledges the critical input of digital currencies at a time when the UK is exploring the digital pound. He dismissed speculations that the BoE is dismissing the viability of central bank digital currencies. Instead, he restated the pursuit of the digital pound.
Stablecoin Regulation Considered a Gateway for Digital Pound Introduction
In his Wednesday, April 12 address, Governor Bailey waded into the stablecoin debate by admitting that regulating stablecoins is necessary as the UK heightens the introduction of the digital pound. In the speech delivered at the Institute of International Finance, he informed attendants that it is critical to replicate the BoE oversight on commercial bank money to regulate stablecoins.
Bailey observed that stablecoins involve digital currencies whose peg value is tied to the fiat currencies. Stablecoins identity portrays money characteristics though it lacks an assured value.
Bailey confirmed that the Bank of England would integrate assured value within the digital pound. Doing so is necessary to underpin its financial stability.
Regulating Stablecoins Necessary to Optimize Their Money Function
The BoE governor restated that stablecoins can fulfill their money function if they harbor characteristics of money and are regulated as having such features. As such, they would mirror the money issued by commercial banks though issued by entities considered private.
Governor Bailey tore to the vulnerability of stablecoins by citing the sudden collapse of algorithmic-backed terraUSD (UST). The implosion eliminated billions of dollars from the digital assets market, prompting regulators to express concern over the stablecoins’ stability.
The terraUSD collapse in May prompted the BoE to initiate plans to monitor the stablecoins’ functioning, given their potential to influence the entire financial system. Bailey revealed the advanced process undertaken by the UK government to consult on formulating crypto-specific rules.
Meanwhile, the UK is set to start stablecoins’ regulation as payment guided by the provisions in the proposed Financial Services and Markets Bill currently debated before the parliament.
Crypto Regulations Key to Eliminating Speculative Bets
Bailey recanted the criticism he portrayed towards the stablecoins. He confessed that regulators should recognize the central bank’s digital currency input in the digital money segment.
The central bank executive lauded the progress accomplished by the UK in exploring the viability of digital pound issuance. The digital pound would feature anchorage of its value of money irrespective of their digital or physical forms. Doing so would optimize the innovation of payment services.
The central banker warned investors to exercise caution when handling and investing in crypto. He decried that dealing with unbacked crypto is akin to placing bets. Bailey lamented that handling unsupported crypto mirrored dealing in highly speculative investments lacking intrinsic value.
Stablecoin Regulation in the US
Elsewhere, the Stellar Development Foundation chief executive Denelle Dixon considers it necessary for the US to formulate stablecoins regulation. The executive reveals that delayed stablecoin regulations would hurt the greenback.
The Stellar chief admits that stablecoin regulation would calm the threats posed by countries pursuing alternatives to the US dollar. As the US regulators exercise a firm grip on crypto industry operations, it becomes viable to regulate the dollar-pegged assets.
Dixon exuded confidence in the US implementing stablecoin regulation before the onset of 2024. The executive cited the commitment illustrated by Joe Biden’s administration to signal the likelihood of Congress delivering a stablecoin regulatory framework.
Dixon’s optimism about the US enacting stablecoin regulation arises from the awareness that it is inevitable. He illustrated that stablecoins accounted for 10.5% of the total crypto market capitalization, with the amount in circulation estimated at $133 billion.
Besides, regulating stablecoins is paramount, considering that the majority carry with them the US-dollar peg. Failure to regulate stablecoins would trigger an exodus of the issuing companies to jurisdictions perceived friendlier to the cryptos.
Unless the US and UK lead in formulating stablecoin regulations, they will exclude themselves from the innovation since companies could establish outside the territories. Besides, it would disadvantage them since the two countries harbor budding consumers who desire to leverage technology.