BoE’s Bailey skeptical of stablecoin security


Bank of England Governor Andrew Bailey poses for a photo on day one in his new role at the Central Bank in London, Britain March 16, 2020. Tolga Akmen / Pool via REUTERS

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LONDON, Nov. 23 (Reuters) – Bank of England Governor Andrew Bailey has said he does not believe stablecoins are likely to evolve into a secure and regulated form of currency, leaving digital currencies in the central bank as a more likely future for electronic payments.

“I think we have two choices overall,” Bailey told lawmakers in the upper house of the UK parliament, as part of an inquiry into the future of digital payments.

“Is this going to evolve into a world of (asset) backed stablecoins that has silver-like characteristics that could be regulated? I have to say… I’m skeptical about this.

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“Or … is the best contribution, especially to financial stability, the best alternative to that perhaps central bank money in digital form?”

Stablecoins are a form of virtual currency whose values ​​are tied to traditional assets such as the US dollar or commodities, and their rise has accelerated discussions by central banks around the world about digital versions of their currencies.

Policymakers fear that a stablecoin or similar payment mechanism promoted by a tech giant – something Facebook (FB.O) has been working on for several years – will quickly snowball and become dominant, raising issues of competition, confidentiality and financial stability.

The BoE and the UK Treasury said this month they will hold formal consultations in 2022 on whether to move forward on a possible central bank digital currency (CBDC) which, if approved , would be introduced in the second half of the decade.

During his appearance before the House of Lords Committee on Economic Affairs on Tuesday, Bailey said he was not considering the BoE offering digital bank accounts directly to savers.

“We don’t see this as an entry by the Bank of England into the retail bank account business through a central bank digital currency,” he said.

Instead, the BoE would provide the means of settlement to a regulated platform on which banks, and possibly other digital wallet holders, would operate.

The BoE would need powers over the platform companies to protect the privacy and use of personal data, Bailey said.

Bailey also said that work on a central bank digital currency was intended to solve problems with retail and cash transactions, and not as a tool to implement unconventional monetary policy such as a rate of negative interest.

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Reporting by David Milliken Writing by William Schomberg

Our standards: Thomson Reuters Trust Principles.


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