UK's Central Bank Authority Warns of Potential Threats Posed by Stablecoins to Domestic Financial Markets
Crypto Daily Hodl
Headlines- UK Regulators Monitor Stablecoin Risks Starting From April 2025- Bank of England Panel Warns Against Foreign-Controlled Stablecoins- Implications of Stablecoins for Cross-Border Payments and Currency Substitution
April 11, 2025 - Cryptocurrency
A committee under the Bank of England has made it clear that they will be continuously monitoring stablecoins as a precaution against financial risks. The increased activity in the stablecoin market over the past year has raised concerns for the committee known as the Financial Policy Committee (FPC). They pointed out:
The FPC recommended avoidance of stablecoins that primarily use foreign currencies in light of the efforts being made by the UK and international jurisdictions to establish regulatory regimes for these assets. The committee is of the view that excessive adoption of foreign currency-denominated stablecoins could make certain economies vulnerable to currency substitution and other macro implications.
In addition, the FPC warned about the potential implication for cross-border payments, stating that the use of stablecoins beyond solely crypto settlements could lead to increased counterparty credit risk and make it more challenging to moderate increased volatility. Retail consumers and small to medium-sized enterprises could use stablecoins for cross-border payments, resulting in currency substitution. Consequently, this could give way to further market instability, underscoring the importance of proper regulation and risk management.
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The struggle to maintain "singleness of money" (interchangeability between various forms of money, including stablecoins) is central to the Bank of England's approach to regulating systemic stablecoins used in payments. The bank has proposed a regulatory framework for retail stablecoins, but industry feedback raises concerns about business model misalignment, overlap with the Financial Conduct Authority, and cross-border complications. The Financial Policy Committee is charged primarily with maintaining financial stability and ensuring resilience in financial systems, but it lacks direct regulatory authority over stablecoins. An ongoing discussion paper presented by the Bank of England could provide more detailed information regarding stablecoin regulation and specific concerns of the Financial Policy Committee.
[Enrichment Data: Interchangeability, Singleness of money, Regulatory framework, Business model misalignment, Overlap with the Financial Conduct Authority, Cross-border complications]
- The Bank of England's approach to regulating systemic stablecoins emphasizes maintaining "singleness of money," ensuring interchangeability between various forms of money, including stablecoins, and other standard currencies.
- In addition to a proposed regulatory framework for retail stablecoins, concerns have been raised about business model misalignment, overlap with the Financial Conduct Authority, and cross-border complications in the industry.
- The Financial Policy Committee, though primarily focused on maintaining financial stability and ensuring resilience in financial systems, lacks direct regulatory authority over stablecoins, and an ongoing discussion paper by the Bank of England may provide more insight into specific regulatory concerns.
