Sarah Breedon has spoken on the importance of interoperability in an increasingly digitalised environment. She said the BoE is aware that developments in digital money and assets risk new systems emerging in what she described as quite small walled gardens with quite high walls, which will result in fragmentation across the financial system, and could potentially trap liquidity if customers find it hard to move their money between the traditional and the new payment and settlement spaces. So it is critical to be able to convert seamlessly between different forms of money, and this is what sits behind the BoE’s thinking on how to regulate systemic, payments-based stablecoins. However, some of its key messaging has not gone down well with market participants, who have said that:
- the proposed regime does not align with existing stablecoin models whose revenues are based on interest income, and the BoE’s focus on this “singleness of money” is not consistent with existing uses for stablecoins;
- as a result of the different focus between the BoE proposals and the FCA’s regime for non-systemic stablecoins, the transition to the Bank regime could be challenging; and
- there could be international challenges arising from the UK having a regime that looks different to how other jurisdictions are implementing their stablecoin regimes.
The BoE has listened, and thinks it will be helpful more clearly to differentiate between payment coins used in the “real” world and other types of stablecoin which have more investment or settlement based roles. Also it sees the benefit in making a distinction between the large, systemic payment coins it has in mind, and smaller (currently non-systemic) coins. As it develops its proposals the BoE will be alert to the current differences, but also aware of the possibility for things to change very quickly, specifically in terms of things that are not currently systemic becoming so.