Bank of England (BOE) Governor Andrew Bailey suggested that Stubcoin reduces UK reliance on commercial banks and shows a potential change in central banks’ attitudes towards digital assets.
In an article Wednesday in the Financial Times, Bailey said the current financial system combines money and credit creation through fractional reserve banks where banks hold a portion of their deposits while lending the rest. Fractional reserve banking is a system in which banks hold only a small portion of their reserve customer deposits and lend the rest, thereby generating new money through credit expansion.
“Most assets that support commercial bank funding are not risk-free. They are loans to individuals and businesses,” Bailey wrote in the FT. “There’s no need to organize your system like this.”
Bailey said that, at least in part, could “separate money from the credit clause.” In such a system, banks and stubcoins coexist, and non-banks perform most of the role of credit clauses. Still, Bailey warned that “it is important to take full consideration of the implications of such changes.”
Related: UK Finance Pilot tokenized Sterling Deposits at Six Major Banks
Industry pushback against Stablecoin restrictions
Bailey’s comments follow criticism of the UK Bank’s stance on Stubcoin by a UK-based cryptocurrency advocacy group. The organization criticized the BOE’s plan to set up individual caps for Steubcoin Holding.
Implementing the restrictions is challenging and expensive, potentially leaving the UK in other jurisdictions in the stubcoin sector, according to industry groups. Tom Duff Gordon, Coinbase’s vice president of international policy, argued that “I don’t think other major jurisdictions need to impose a cap.”
Still, Bailey’s comments could mean a change of direction. He revealed that his focus is on the massive adoption of stubcoins for payments and settlements. He said current stubcoins and cryptocurrencies are not eligible yet.
Related: Strengthening our relationship with us on the UK crypto issue: Report
Stubcoin with Bank of England account
Bailey said in an FT article that the bank will publish a cooperative discussion on the UK’s Systablecoin regime in the coming months. This new regime applies to stubcoins intended to be used as money, as described as “for daily payments and solutions to the tokenized core financial market.”
He said, “Widely used UK stubcoins should have access to your account. [Bank of England] To strengthen its position as money. ” Bailey explained that the move is important to create a government that ensures that the UK can enjoy the benefits of stables while maintaining financial stability.
The statement follows Bailey’s warning to the banks that issued Stablecoins in mid-July, saying BoE should instead focus on sediment symbolism. Ensuring that Stablecoins have an account with the central bank appears to be an indirect way for BOE to tokenize deposits.
Stablecoins need to evolve
Despite his openness to Stablecoins, Bailey noted that some features “need scrutiny” and that bank assets must be risk-free. Furthermore, he suggested that Stablecoins require insurance against operational risks such as hacking and standardized exchange terms.
He said, “It should be possible to innovate in the form of money,” and therefore “thus, it would be wrong to oppose stablecoins.” Instead, he recognizes the “possibility of driving innovation in payment systems.”
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