The Bank of England (BoE) is planning to impose some restrictions on stablecoin use, to lower the financial instability risks.
Stablecoins are centralized crypto assets, pegged by the value of fiat currencies. In the crypto sector, Tether (USDT), Circle (USDC), Paxos (USDP), etc are the most popular stablecoins. However, these stablecoins are centralized & also exhibit a significant amount of risks citing unclear regulatory framework on the stablecoins business but still crypto Investors prefer to use stablecoins as the best tool to transfer funds from one crypto platform to another without involvement of third party payment processor, unlike traditional financial system.
On 17 April 2023, Jon Cunliffe, the Deputy Governor at the Bank of England (BoE), Indirectly noted that the Central Bank facing significant competition in the financial sector because of increasing stablecoins adoption in the payment system but at the same time he also admitted that competition is necessary to see innovation.
According to the BoE deputy governor, competition because of stablecoin adoption is not healthy as it doesn’t provide a chance for the financial system to change with time, so stablecoin adoption & use cases should be restricted.
“(Stablecoin payments & use) need to guard against “rapid, disruptive change that does not allow the financial system time to adjust and could therefore threaten financial stability,” the deputy governor said.
Few Media reports noted that the latest response from the BoE official is a reaction to the latest stablecoin bill, proposed by the U.S. House Financial Services Committee, to regulate the stablecoins under the jurisdiction of the United States.
In July 2022, a bill was introduced in the UK to regulate stablecoins under the authority of the Financial Services and Markets Bill. That bill is in the final stages of debate in Parliament to get approval. A bad part of the UK stablecoin regulation bill is no provisions for protection against failure.
Read also: American securities regulatory body charges Bittrex crypto exchange
England seeks some restrictions against stablecoin uses
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