On 3 September 2020, the Bank of England (BoE) published a speech by its Governor, Andrew Bailey, in which he looks at recent innovations in payments and the challenges they bring. Mr Bailey also examines the benefits and risks that stablecoins present.
Mr Bailey states that a stablecoin that intends to launch with sterling-based activities in the UK must first meet relevant standards and be appropriately regulated. If a sterling stablecoin wishes to operate at scale in the UK, then the BoE will strongly consider the need for the entity to be incorporated in the UK. This is similar to the subsidiarisation of banks that the BoE requires if they are holding UK retail transactional customer deposits above a de minimis level.
In terms of a global stablecoin, which is a cross-border phenomenon, Mr Bailey mentions that the BoE is looking forward to the Financial Stability Board’s final report on the topic which is expected in October. He also adds that current proposed global stablecoin offerings will need to demonstrate how they meet domestic and international standards. They must do so before the global regulatory community can be comfortable with their launch and widespread adoption.
Mr Bailey also discusses central bank digital currency (CBDC) and the discussion paper that the BoE published earlier this year that sets out the key considerations and an illustrative model based on a central bank core ledger and private payment interface providers offering overlay services to users. Mr Bailey reports that the discussion paper received a wide range of responses that the BoE is working through and it will set out more information next year.