While investors and market participants may be excited about crypto assets such as stablecoins, Andrew Bailey, Governor of the Bank of England dampened their enthusiasm with a call to regulators across the globe to introduce standards that make them “safe and resilient” for the public.
Speaking at a Brookings Institution event, Bailey commented that if stablecoins were to gain traction as a means of payments, “they must have equivalent standards to those that are in place today for other forms of payment types and the forms of money transferred through them”.
He also added, that any stablecoin based on the pound that was launched in Britain should meet standards similar to those applied to banks. The issuer of such a coin would need to be based in the country.
Bailey said that existing regulatory requirements must be examined and updated where necessary in light of stablecoins and called for a clear G20 mandate for policy makers to refresh or clarify frameworks.
He also pointed to the work being done by the G7 and Financial Stability Board, which conducted a consultation in April on the regulatory and supervisory challenges they present, with a final report due in October.
Stablecoins are a type of cryptocurrency that are pegged to the price of a fiat currency or a basket of assets, to try to limit their volatility. They are fairly niche but came into the limelight last year when Facebook unveiled its Libra stablecoins,
Central banks and financial regulators were concerned that Libra — planned as a stablecoin backed by a wide mixture of currencies and government debt — could destabilise monetary policy and facilitate money laundering, with some threatening to block it.
In April, the Geneva-based Libra Association, which will issue and govern the planned stablecoin, said it would offer stablecoins based on a still-undecided line-up of individual currencies, citing those based on the dollar, euro and sterling as possible examples.
While there are several obstacles, Bailey said there could be a future for stablecoins in terms of a currency for purchasing goods and services. He is less certain about bitcoin which has attracted a great deal of attention and money over the past ten years.
“Bitcoin has no connection to money at all…their value can fluctuate widely unsurprisingly,” he said. “They strike me as fundamentally unsuited to the world of payments where a certainty of value matters.