the The Deputy Governor of the Bank of England issued a warning that regulators may need to limit the use of stablecoins.
Regulators may have to restrict stable payments in payments to maintain financial stability, according to the Bank of England’s deputy governor for financial stability. to talk On Monday at the Innovate Finance conference, John Cunliffe said that while risks to financial stability from payment stablecoins should be manageable over time, uncertainty persists about the rate and extent of their adoption.
“But we cannot know with certainty the extent and speed at which stablecoins may be adopted for payment and we may need limits, at least initially, to ensure that disruptive change that could threaten financial stability is avoided,” Cunliffe said.
This warning could have serious ramifications for stablecoins such as Tether’s USDT, Circle’s USDC, and Binance’s BUSD. Stablecoins are cryptocurrency tokens that theoretically reflect the value of traditional assets, such as fiat currencies. Regulators are interested in the assets that support their value. Some observers fear that stablecoins could pose a risk to the financial system if they become competitors to fiat money.
The recent volatility in the cryptocurrency markets raises questions about how stable these tokens really are. TerraUSD, an algorithmic stablecoin, fell to nearly zero when investors withdrew funds. Investors were widely concerned about the token’s technical model. Furthermore, there is no framework for consumers to receive reimbursement if the stablecoin fails. Unlike commercial bank funds, which enjoy deposit insurance of up to 85,000 pounds ($105,100).
Stable currency concerns
Last month, the US dollar de-pegged after its reserves were caught up in the Silicon Valley bank collapse. Observers were concerned that a prolonged decoupling could unravel much of the DeFi ecosystem.
Cunliffe stressed that the assets behind a stablecoin must be “of sufficient value to meet redemption requests.” Otherwise, to avoid a scenario where systemic stablecoins pose risks to the financial system. He noted that such assets could include deposits in the Bank of England or highly liquid securities.
The UK government is currently consulting on new regulations to address the risks digital currencies pose to consumers while ensuring that the country remains a place for crypto companies to do business. The upcoming Financial Services and Markets Act aims to bring asset-backed stablecoins into the regulatory fold. Prime Minister Rishi Sunak has expressed support for cryptocurrency, and the UK is exploring a digital version of the British pound, sometimes known as “Britcoin.”
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