Bank of England Hints at Limits on Stablecoin Payments  

Rattled by the collapse of Silicon Valley Bank, the crypto winter of 2022, and unnerved at the prospect of crypto assets being widely used as a payments instrument, the Bank of England (BoE) is calling for limits on stablecoins for payments that are not backed by liquid capital.

On the heels of the February call for consultation on the use of cryptocurrency issued by U.K. financial regulatory body HM Treasury (HMT), titled “Future Financial Services Regulatory Regime for Cryptoassets” Bank of England Deputy Governor Jon Cunliffe called for limits on the use of stablecoins for payments at scale until a regulatory framework is in place.

As Reuters reported on Monday (April 17), Cunliffe said at the Innovate Finance conference for U.K. Fintech Week that, “Systemic stablecoins will need to be backed with high quality and liquid assets,” adding that “These could include either deposits at the Bank of England or very highly liquid securities, or some combination of the two. We are currently considering which of these options is most appropriate.”

Harking back to recent failures in the mainstream banking system and uncertainty around crypto for payments, Reuters reported: “Initially at least, it would not be possible to protect stablecoin deposits in the case of failure by using the industry-funded scheme which protects sterling bank deposits up to 85,000 pounds ($105,451.00), Cunliffe said.”

While terming risks around the use of stablecoins for payments manageable over time, Cunliffe said the caveat is “We cannot know for certain the extent and the speed at which payment stablecoins might be adopted and we may well need limits, at least initially, to ensure we avoid disruptive change that could threaten financial stability.”

In its February consultation and call for evidence, HM Treasury said: “The government is currently legislating in the Financial Services and Markets Bill 2022 (FS&M Bill) to introduce a regime that will allow for the regulation of fiat-backed stablecoins which are used for payments, similar to that for other payment methods (Phase 1) given that these stablecoins have the potential to become widely used as a form of payment.”

It continued, “The regime will address issuance and custody activities relating to fiat-backed stablecoins as well as payment-related activities for those fiat-backed stablecoins which are used in payments. The scope of this is expected to cover, at a minimum, GBP and other fiat-backed stablecoins which are issued in the UK. The Bank of England and the Payment Systems Regulator (PSR) will also have a regulatory remit for Digital Settlement Assets (DSAs).”