BoE’s CBDC director: Stable coins need to offer 'equivalent protection' to paper money

Digital currencies should be subject to tailor-made but equally stringent rules

by | June 22, 2021 | bobsguide

As central banks explore the use of stable coins, the introduction of digital currencies “would have to offer equivalent protection to existing pools of money”, according to the director for Central Bank Digital Currency (CBDC) fintech at the Bank of England.

Speaking at the City Week 2021 conference, Tom Mutton said stable coins present the same risk as paper money and will need appropriate level of regulation.

However, “that doesn’t mean [it needs to be] identical,” Mutton argued. “It may mean that any approach to regulation, which the Treasury is currently consulting on, will take into account very specific propositions, technologies and business models,” he added.

Moreover, if CBDCs and stable coins are to be used at scale, it would be “coexistence rather than replacement” of money in circulation, he added.

Earlier this month, the Bank of England published a discussion paper to explore the possible roles of digital money in the wider economy and the prospects of issuing a British CBDC.

Victoria Cleland, executive director for banking, payments and innovation at the BoE, said at the City Week event the central bank “will take time to deliver” any practical decision on the matter.

While global policymakers have only recently started to engage with the market reality of crypto currencies, the sector has long been calling for wider acknowledgment.

Marcus Hughes, managing director for EMEA at Coinbase, said “education and demystifying the [crypto] space is absolutely critical towards unlocking the huge potential”.

“We’ve advocated since the very early days that the regulation is what the crypto space needs to provide confidence [to investors].

“What we’ll see is an evolution of those rules,” Hughes argued. “There will be initial entry-level foundational rules around how to regulate crypto. Then over time, as that ecosystem [becomes] more complex, you’ll find the layering and additional rules on top of those.”

Sandra Ro, chief executive at Global Blockchain Business Council, said the crypto space was experiencing a “classic problem” in that the “fast-paced tech industry that is evolving [and] innovating faster than most governments and policies and regulatory environments can’t keep up”.

However, BoE’s Mutton drew attention to the fact that a digital currency that could “be used in the mainstream for high-volume, high-intensity payments,” would need to diverge substantially from any older-technology blockchain or distributed ledger systems such as Bitcoin, he said.

Last month, Tesla CEO Elon Musk announced the company would no longer accept Bitcoin until “there’s confirmation of reasonable clean energy usage by miners with positive future trend”.

However, Ro pointed out there are “a lot of discussions” within the mining sector around environmentally-friendly cryptos. “[We’re] seeing an increasing number of companies […] adopting renewable energy usage, whether its fuel thermal [or] solar.”

There is also a “geographic shift happening” in the Bitcoin mining sector as miners shift towards the US, Canada and “some parts of the Nordic countries”, she said.

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