The UK is moving to put stablecoins at the center of a new Bank of England mandate aimed at supporting innovation in digital payments.
The government plans to give the Bank of England, the UK’s central bank, a secondary objective to support innovation in payment systems and emerging forms of digital money, HM Treasury announced on Thursday.
The mandate will cover payment systems that use digital settlement assets such as stablecoins, while financial stability will remain the BoE’s primary objective.
The proposal comes as the UK steps up its work on stablecoins through regulatory changes, payment experiments and closer coordination with the US.
BoE innovation mandate faces September debate
The new responsibility would extend an existing approach used to regulate central counterparties (CCPs) and central securities depositories (CSDs), which help clear, hold and settle financial assets.
Under the proposed change, the central bank would report annually to Parliament on its progress toward the payments innovation objective.
“Developments in digital payments technology, including tokenisation and DLT [distributed ledger technology], have the potential to transform financial markets across the globe,” City Minister Lucy Rigby said.
The government expects to implement the objective through amendments to the Financial Services and Markets Bill, which is scheduled for further debate in the House of Lords on Sept. 7 and 9.
Stablecoin rules still face industry concerns
The new mandate’s impact may depend on how BoE uses its annual reporting requirement, Maksym Sakharov, co-founder and CEO of on-chain banking infrastructure provider WeFi, told Cointelegraph.
“The objective is secondary to financial stability, so it overrides nothing, but the bank will have to publish an annual account of its innovation efforts in payments and digital money,” Sakharov said. This requirement could put greater public scrutiny on stablecoin rules the central bank finalized in June.
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Sakharov pointed to requirements for systemic stablecoin issuers to hold at least 30% of their backing assets in non-interest-bearing deposits at the central bank.
“The reserve split is the first thing to fix,” he said, adding that the requirement could determine whether a stablecoin business is commercially viable.
UK steps up stablecoin push
The new mandate follows increasing UK efforts involving stablecoins, or crypto assets designed to maintain a stable value by tracking assets such as the US dollar.
In August, a group participating in the Bank of England’s Digital Pound Lab began testing whether a stablecoin and a simulated digital British pound could work together in a cross-border trade payment. The experimental platform does not use real customers or money.
Related: Revolut rolls out euro stablecoin in 3 European markets
In mid-July, the UK and US published a joint statement on stablecoins, with the governments saying they “intend to enable the use of stablecoins in cross-border finance” and calling for greater alignment of their regulatory frameworks.
BoE also previously dropped plans to limit stablecoin holdings to 20,000 British pounds for individuals and 10 million pounds for businesses, replacing them with a temporary 40 billion pound ($52.9 billion) issuance cap for each systemic stablecoin.
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