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Bank of England is cautious about introducing CBDC and proposes bank level rules for stable coin settlement including private sector


Further consideration is required for the introduction of digital currencies

The Bank of England’s deliberation document (discussion paper: DP) “New Form of Digital Money” released on June 7 brings many cost and functionality benefits to the Central Bank Digital Currency (CBDC). On the other hand, there is a “major uncertain factor” in its demand and its impact on the economy, so he cautioned that further consideration is needed.

The Bank of England has defined both publicly issued CBDCs and stable coins offered by private companies as “new forms of digital money” and is consistently retail (for the general consumer) in this DP. Focus on usage.

The purpose of this DP is to detail the Bank of England’s current thinking on the role and impact of the CBDC and Stablecoin, as well as opinions from financial institutions, payments industry stakeholders, tech companies, experts and the general public. It is intended to raise discussions.

“The outlook for stable coins as a means of payment and the newly proposed CBDC raises a number of issues,” said Andrew Bailey, the central bank on the future of the new digital currency. He emphasized that it is essential for the government and society as a whole to ask rigorous and appropriate questions.

Regulation of stable coin payment

HM Treasury is considering making stable coins regulated by the Banking Act of 2009, and the Bank of England (BoE) is making proposals based on its consulting framework.

The bank said that stable coins may provide both settlement and savings (value storage) functions, so for their safe operation, clear regulations must be created to support both functions. It pointed out. Some of them apply banking model and bank-like requirements to stable coins.

“Stable coins used as currency should meet the same criteria as the currency known as bank deposits offered by commercial banks,” BoE claims. Stablecoin issuers said they needed to meet legal and capital requirements, liquidity requirements, and provide deposit insurance.

20% of Commercial Bank Deposits in Digital Currency

BoE states that factors such as convenience, reliability and security play a major role in determining the demand for stable coins.

A more concrete model of the demand for digital currencies, with 20% of personal deposits in the UK set to be “a new form of digital money.” That would push up bank funding costs and predict bank rates to rise by about 0.2%, while it could provide a cheaper source of funding for some consumers. And overall, he concludes that the impact on lending rates and credit grants will be relatively small.

However, such cases are uncertain and may differ from the actual results, so we would like to consider a mechanism that can evaluate the impact on the financial system after the introduction of a new digital currency. States.

Since the widespread impact will gradually become apparent only after the transfer of deposits from commercial banks, during the “transitional period” of the system, the Bank of England and other financial authorities will encourage “orderly adaptation” of deposits. He also mentioned that he was considering the possibility of imposing restrictions on movement.


Author: Naoko Kouda
Reference: Bank of England

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