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BoE believes stablecoins must be subjected to severe scrutiny

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  • Stablecoins could face difficult questions if it’s about the future of such currency as per BoE
  • The Bank of England believes that fiat-pegged tokens should not enjoy regulatory arbitrage
  • Stablecoins needs to satisfy regulators regarding safety to get adopted besides fiat
  • The Boe believes that CBDC has the potential to boost monetary policies

Stablecoins are the next target of regulators in the United Kingdom. The Bank of England (BoE) recently declared that crypto coins pegged with government-issued fiat currency must be subject to tough scrutiny. On Monday, the BoE released an official publication entitled “New forms of digital money”. The central bank’s publication has been considered the latest sign of UK regulators preparing to target crypto assets.

BoE is yet to decide stable token’s regulatory approach

On Monday, the UK central bank stated that it had not yet decided on its regulatory approach to fiat-pegged cryptocurrency. However, it expects that the issuers of the assets should have sufficient reserves backing such coins. Moreover, such platforms should offer stablecoins as one-to-one redemptions for traditional cash.

Read more: UK Banks cracking down on payments to cryptocurrency exchanges

Stablecoins in the UK can face pertinent questions

On Monday, Andrew Bailey, the governor of BoE, commented regarding stablecoins. The governor believes that stablecoins as the means of payments have generated a range of concerns. Following the scenario with the stablecoins, the central bank’s governor deemed that regulators should ask difficult and pertinent questions when it comes to the future of such new forms of digital currency.

Bank of England Cleared Its' Stance of No Compromisation for Any Future CBDC Digital currency
Source: TheCoinRepublic

Stable token firms should not enjoy regulatory arbitrage

Stablecoins are primarily popular in the crypto industry. Such digital tokens offer a popular and convenient way to transfer funds among everyday currencies like sterling and crypto-assets like BTC. Such a type of fiat-pegged currency aims to offer lesser volatility in the high volatile crypto market.

The United States and Europe are monitoring the potential of stablecoins. Also, these countries are establishing plans for closer oversight of stablecoins.

However, the BoE’s release has taken opposite steps and called for the most strident and specific regulations to date. According to the official release by the BoE, firms offering stablecoins should not be provided regulatory arbitrage.

Can stablecoins be used alongside commercial banks?

According to the UK central bank, if stablecoins wants to be used alongside the country’s national fiat currency, then it should satisfy the regulators in terms of safety. Moreover, the bank wants these kinds of crypto tokens to not rely on making promises that they cannot guarantee. However, BoE has also revealed that it had called for consultation on the topics, with feedback expected by September 2021.

Is the BoE planning to launch CBDC?

The BoE has not completed its decision over the launch of a potential central bank digital currency (CBDC). However, the bank is observing the scenario whether the issue will be a success. Countries like China, the US, and India are also monitoring the utility of launching a CBDC. 

Read More: CBDC and the unavoidable digital era growth

Read More: CBDCs pivotal in global acceptance of cryptocurrencies

A couple of months back in the United Kingdom, the Bank of England established a special task force to learn about CBDCs. According to Rishi Sunak, Chancellor of the Exchequer, the UK needs to move further with pace to keep at the head of financial innovation. However, the BoE also believes that CBDC could play an essential role to help expand retail access. Moreover, the national digital currency could also boost the monetary policy in the country.

Crypto industry is already facing strict regulatory scrutiny

In mid-May, the crypto market saw several deep slides of prices. The significant reason behind the crash is the strict regulations that the industry was facing globally. The People’s Bank of China cracked down on crypto firms and prohibited such firms. Turkey banned crypto assets from being used as a method of payments.

Nigeria's SEC crypto
Source: TheCoinRepublic

On the other side, countries like Nigeria and India prohibit banks from offering services to crypto-related firms in the country. Notably, the United States acting comptroller of the currency, Michael Hsu, deemed that authorities should create a regulatory perimeter over the assets like stablecoins and other cryptocurrencies.

After these aforementioned countries, the United Kingdom has continued to have strict regulations over cryptocurrency.

Why are regulators targeting the crypto industry?

The cryptocurrency ecosystem has a lot bigger potential to bring transformation. Moreover, the ecosystem provides freedom, privacy, and hope. Still, due to the privacy features, several illicit actors used it for laundering funds. 

Notably, the authorities are increasingly concerned regarding the limited consumer protection offered by the industry. The potential role of the ecosystem is a less traceable currency, which attracts more bad actors. Ultimately, the financial crimes being observed globally has attracted regulators.

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