Stablecoins could be more strictly regulated in banking

0

The digital currency still has a long way to go before it becomes ubiquitous. And for stablecoins – not to be confused with digital fiat – the path can be a bit bumpy.

Stablecoins are digital offerings that are powered by an underlying asset (e.g.

“Narrow” is particularly relative to the wild price fluctuations in Bitcoin and other “pure” cryptos that are not supported by such tangible bonds. As we’ve seen, Bitcoin can go up or down several percentage points in a day or even an hour.

Stablecoins are gaining a foothold in the financial services sector, where JP Morgan made headlines with its JPM Coin (pegged one-to-one with the dollar), which is designed for instant B2B payments between accounts.

But as for the bumps, the Financial Times recently reported that the Bank of England warned that stablecoins may be more regulated. Officials noted that banks would likely need to have reserves that would allow stablecoin holders to redeem them for cash one-on-one.

“The prospect of stablecoins as a means of payment … [has] caused a variety of problems, “said BoE Governor Andrew Bailey. “It is important that we ask ourselves the difficult and pertinent questions when it comes to the future of these new forms of digital money.”

Completely interchangeable

The bank said in a statement that “stablecoins must make credible and consistent pledges to be fully interchangeable with existing forms of money … for stablecoins to be used alongside commercial bank money, the bank must be confident that they are safe … must not rely on that they make promises which they cannot guarantee over time. ”In the meantime, of course, the bank itself is examining the issuance of digital fiat itself, which is to be issued as central bank digital currency (CBDC).

The issue of regulation is urgent as, in at least one case, governments are welcoming cryptos (with all of their inherent volatility) with open arms. That would of course be El Salvador, which says Bitcoin will act as legal tender in that country, just like the US dollar (the official currency).

Separately, the Bank for International Settlements (BIS) has said that cryptocurrencies should be divided into two asset classes – and has asked for consultation on this. The Basel Committee of the BIS postulated in an announcement that the crypto classes would be divided into offerings such as stablecoins and tokenized assets, which are eligible for treatment under the Basel framework, which provides standards for banking supervision. Separately, the BIS said that cryptos with an allusion to their risk “would be subject to new conservative prudential treatment”. CBDCs would not fall within the scope of the proposed asset classes above.

With the BIS, in turn, owned by the central banks, the proposal can provide a kind of roadmap for where the monetary authorities as a whole could go in terms of cryptos, stablecoins and CBDCs. In short, the roadmap suggests more regulation. It could be the case that stablecoins are subject to stricter capital reserve policies, which in turn tie up capital on balance sheets … which can then prevent their creation or acceptance by banks (at least a little).

Next: DeFi and the tokenization of “Everything”

Read more about stablecoins:

———————————

NEW PYMNTS DATA: DIGITAL BANKING STUDY – THE BREWING BATTLE, WHERE WE BANK

Above: Despite the great interest in these services, 47 percent of US consumers shy away from pure digital banks for data protection reasons. In Digital Banking: The Brewing Battle For Where We Will Bank, PYMNTS surveyed over 2,200 consumers to find out how digital-only banks can ensure privacy and security while providing convenient services to meet this unmet demand.

Leave A Reply

Your email address will not be published.