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Stablecoins Poised for Integration, Says BOE Governor

Jul 11, 2023

BOE Governor Stresses Potential for Stablecoins in Evolving Digital Money Landscape

Bank of England Stablecoins

In a speech delivered on July 10, Bank of England (BOE) Governor Andrew Bailey shared his perspective on digital currencies, highlighting the potential of "enhanced digital money" while expressing reservations about cryptocurrencies and stablecoins. Bailey emphasised the need for regulatory oversight, stability, and usability in the evolving financial landscape.


While acknowledging the limitations of cryptocurrencies and stablecoins in meeting the criteria of singleness of money and settlement finality, Bailey also recognised the potential integration of stablecoins into the financial system through the passage of the Financial Services and Markets Act. This regulatory development could pave the way for stablecoins to align with existing regulations and provide a potential avenue for their adoption.


Bailey suggested that the concept of "enhanced digital money" holds promise, where digital currencies existing in IT systems can be enhanced to become a unit of money capable of executing additional actions through smart contracts. This approach seeks to leverage the benefits of digital currencies while ensuring regulatory compliance and robust functionality.


Moreover, Bailey discussed the advantages of a retail central bank digital currency (CBDC) in promoting the singleness of money and providing the public with access to fully functional central bank money for everyday transactions. While he emphasised that well-designed enhanced digital money need not be solely the domain of central banks, Bailey highlighted the distinct benefits a retail CBDC can offer, ensuring stability and reliability in the financial system.


Regarding wholesale CBDCs, Bailey revealed that the BOE had made significant upgrades to its Real-Time Gross Settlement (RTGS) system, positioning it favourably to integrate central bank digital money with tokenised transactions. This integration, he argued, could be achieved efficiently and effectively, potentially eliminating the need for a separate wholesale CBDC.


Despite the advancements in digital money, Bailey reaffirmed the enduring importance of physical currency, stating that cash is here to stay. His remarks reflect the BOE's commitment to developing and implementing solutions that enhance the existing financial infrastructure while embracing the opportunities and challenges posed by digital assets.


Andrew Bailey's speech underscored the potential of "enhanced digital money" and the role of regulatory frameworks in shaping the future of digital currencies. The passage of the Financial Services and Markets Act could create a pathway for stablecoins to align with existing regulations, unlocking their potential within the financial system. As the digital money landscape continues to evolve, Bailey's remarks shed light on the BOE's vision for a digital financial future anchored in regulatory certainty and enhanced functionality.

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