UK to Introduce New Regulatory Framework for Stablecoin-Based Payment Systems

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The Bank of England has released a detailed discussion paper focusing on the integration of these digital assets into the country’s financial system, underscoring the critical nature of public confidence in money as a cornerstone of economic and financial stability.

This initiative comes at a time when two predominant forms of money circulate in the economy: state-backed ‘outside money’, which includes both public cash and central bank reserves available to financial institutions, and ‘inside money’, primarily issued by commercial banks and safeguarded by stringent regulation and access to central bank deposits. Stablecoins, designed to offer a stable value linked to fiat currencies and backed by a reserve of assets, are poised to join the ranks of ‘inside money’, subject to the Bank’s proposed regulations.

The advent of digital innovation has significantly diversified the way goods and services are paid for, diminishing the use of cash and paving the way for an array of digital payment options. While this transformation promises enhanced payment efficiency, the Bank of England stresses the necessity for these innovations to be reliably safe for public use.

The government has responded by empowering the Bank with the authority to implement a new regulatory framework aimed at ensuring that stablecoins, should they become a widely accepted payment form, will provide a secure means of transaction. The proposed framework seeks to facilitate innovation while maintaining the integrity and stability of the financial system, ensuring payment services remain dependable.

As the Bank of England lays out its preliminary thoughts on how to regulate systemic payment systems leveraging stablecoins, this move builds on earlier discussions and the Financial Policy Committee’s expectations. The intention is to foster ongoing research and discussion among a wide array of stakeholders, including the payments industry, tech providers, financial institutions, and academics, as well as central banks and public authorities.

The Bank has expressed a strong commitment to addressing the potential impact of stablecoins in the UK’s economy and encourages public engagement in the discussion. This paper serves as an open invitation for feedback and is expected to significantly shape the regulatory landscape for digital assets within the country.


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