The UK Treasury recently said that it will put guidelines on private stablecoins. The HM Treasury noted that private stablecoins could transform the way people exchange and store money.
A positive development
While the Bank of England is busy researching central bank digital currencies, the UK Treasury is putting together guidelines for private stablecoins. The Her Majesty’s Treasury released a statement today, writing,
“new technologies such as stablecoins – privately-issued digital currencies – could transform the way people store and exchange their money, making payments cheaper and faster.”
Private stablecoins can come with several challenges and Rishi Sunak, the Chancellor of Exchequer acknowledged them. He tweeted that the HM Treasury will soon “publish a consultation to ensure new privately-issued currencies, stablecoins, meet the high standards we expect of other payment methods.”
The problem with private stablecoins
Private stablecoins like USDC, Tether, and Gemini Dollar aren’t exactly regulatory sweet dreams. Tether is the most notorious stablecoin in the mix that is pegged 1:1 to the US dollar. The stablecoin claims to be backed 100% by the US dollar when in fact, it was backed only 74%. The stablecoin has been facing a lengthy and controversial probe by the New York Attorney General, over the comingling of funds with its sister company Bitfinex. The crypto exchange allegedly hid millions of dollars in losses from its users.
Sunak said that a public consultation will help in harnessing the benefits of stablecoins while managing its risks for both consumers and the country’s financial stability. The Treasury also said that it is considering, along with the Bank of England, the possibility of central banks issuing their own digital currencies to complement fiat money. These digital coins can help in transitioning to a cashless society or compete with private stablecoins.
Andrew Bailey, the governor of Bank of England, told a Brookings Institute audience last month that stablecoins can offer some benefits and reduce payment frictions. They can reduce cost of payment and increase payment speed.