Speaking at the Institute of International Finance on Wednesday, the governor of England’s central bank, Andrew Bailey, called for regulation of stablecoins. He explained that in order for stablecoins to work, they have to be under the same level of regulation as commercial bank currencies.
Bailey elaborated that although stablecoins claim to be money, they don’t offer any assured value. This is despite the fact that they can be pegged to assets such as fiat currencies like the dollar.
‘Public Should Expect Assured Value,’ Says Bailey
In his statement, Andre Bailey said that the Bank of England emphasizes on the importance of assured value in money. He said that the public should expect the same level of assured value in digital money as they would in commercial bank currency. Without such confidence, financial stability in an economy with stablecoins would be impossible.
Furthermore, he says that stablecoins need to have the same characteristics as commercial bank currency. And to function as ‘money,’ it needs to be subject to the same type of regulation as well. In his statement, he refers to money that’s issued by commercial banks as ‘inside money.’
Growing Concerns Around Stablecoins Since UST Collapse
Bailey’s concerns shouldn’t come as a surprise. Last year, Terra’s stablecoin, UST, collapsed and subsequently erased billions of dollars from the crypto market. The event shook the crypto industry and prompted many financial regulators to question the supposed stability of such stablecoins.
After the collapse of terraUSD in May 2022, the Bank of England rolled out its plans to monitor stablecoins that can potentially affect the financial system. Moreover, UK’s government is also consulting financial experts on drafting new regulation surrounding crypto.
Additionally, the UK is looking at the possibility of regulating stablecoins as a payment option. This could be possible if the Parliament decides to pass the new Financial Services and Markets bill that it’s currently debating on.
Can’t Rule Out Central Bank Digital Currency, Says Bailey
On the subject of a digital currency, Bailey explains that regulators can’t ignore the possibility of a CBDC. Also known as a central bank digital currency, the Bank of England governor makes the comment despite being critical of stablecoins in the past.
He touched upon the fact that the country is looking at the possibility of issuing a digital pound. This could act as an anchor for the value of all types of currencies, as well as new digital ones. Moreover, it would ensure greater opportunity for innovation in the domain of payments services.
At the same time, Bailey pushed investors to be cautious when it comes to crypto. When unbacked, cryptocurrency could be speculative investment that’s similar to betting on outcomes.