There has been much commotion over stablecoins among central bankers, regulators, and legislators in recent years, especially in the furor surrounding Facebook’s repeated attempts to launch stablecoins of various designs that would be native to its multiple networking platforms. social.
However, not everyone in the financial world is so upset. A new speech for the Westminster Electronic Forum Policy Conference by Christina Segal-Knowles, Executive Director of the Bank of England’s Directorate of Financial Market Infrastructure, is titled “What’s Old Is New Again” and aims to tone down some of the enthusiasm and turmoil around the topic.
Restricting its focus to stablecoins that are designed to be used for payments, Segal-Knowles argues that financial regulators are well aware of what is required to ensure that private money is safe and stable enough for public use:
“Stablecoins aren’t launching us into a brave new world […] The key here is to make sure that just because something is packed in brilliant technology, we somehow don’t treat the risks it poses differently. “
Segal-Knowles admitted that the idea of stablecoins – and, more generally, private money – “feels innovative and eye-catching” and attributes it to the simplification in popular culture of how money works and what forms it takes. in the present. In most cases, most people rarely use public money from central banks like the Bank of England, but rather private promissory notes from commercial banks.
Segal-Knowles noted that “ninety-five percent of funds that households and businesses have that are normally used to make payments are now held as commercial bank deposits rather than cash.” After the pandemic, the use of cash is only declining further.
Segal-Knowles even titled a section of his speech “Why Do We Care?” The heart of the problem when it comes to private money, he said, is the security that its current forms can offer its users. Private money in circulation today ensures uniformity and can be reliably exchanged with cash. Deposit protection schemes and regulatory and liquidity requirements offer even more security.
Most of the time, households and businesses rarely lose faith in state support for their currency, with the important exception that in recent history, emerging market crises have in some cases cast doubt on the states’ ability to maintain the value of their national currencies against the United States dollar, as happened with Argentina in the early 2000s. In the financial crisis of 2007-2008, a bank run in Northern Rock signaled a Similar crisis of confidence, prompting the notorious bailout of banks by governments.
For Segal-Knowles, these risks and problems posed by stablecoins “are not fundamentally new,” but they continue the challenges that regulators have long faced in making private money safe for use on a large scale. It follows then that a similar set of tools (legal claim support, capital requirements for issuers, deposit protections, etc.) could be adapted and adapted to regulate systemically important stablecoins. Segal-Knowles pointed out that this set of tools would not be identical:
“If stablecoin traders are restricted to backing themselves in high-quality liquid assets, they won’t need regulation to hedge credit risk. If they are only backed by central bank reserves, which are inherently liquid, they do not need liquidity facilities. Ultimately, the specific requirements may be different from those applicable to banks, but the result will be the same. “
In a recent speech devoted to the same topic, Bank of England Deputy Governor Si Jon Cunliffe took a slightly different tack, arguing that the increasing shift from public money to private money in various forms raises important questions for states and governments. central banks.
Cunliffe went on to suggest that technology-driven developments and changes in the use of different forms of money, including non-bank private money, could make general access to a digital form of central bank money crucial for ensure financial stability in the future. .