BoE Deputy Governor Sir John Cunliffe shared the central bank’s position at the Innovative Finance Global Summit on Monday during his keynote address. Cunliffe said the central bank is currently bracing itself for the rise of tokenized bank deposits on blockchain technology, which could be the easiest to comply with banking regulations.
He notes that bank deposits are already a robust form of money in the U.K., but their tokenization could pose an array of new challenges for the financial system. The bank official remarks that using blockchain “raises questions about the operation of anti-money laundering and other regulations to prevent illicit finance.”
The emergence of stablecoins is another area that has piqued the interest of the BoE, with Cunliffe saying that they offer “greater efficiency and functionality in payments. He told conference attendees that since non-banking entities issue most stablecoins, stablecoin holders are not protected by the BoE’s Financial Services Compensation scheme.
The central bank is currently mulling whether or not it will impose limits on stablecoins and is consulting with industry stakeholders on the requirement of converting the asset class to fiat.
“It has been suggested that ensuring the uniformity (or ‘singleness’ of money) requires that all transactions between different monies settle ultimately in central bank money across the books of the central bank,” said Cunliffe. “While it is not clear to me that this should be the case, it is clearly an issue that should be considered carefully in the design of the regulatory regime.”
Cunliffe confirmed that the BoE is laying the foundations for a retail CBDC because of the immediate impact that it could have on the financial system. He added that private entities would offer wallets and other consumer payment services while the central bank would concern itself with establishing the central transfer mechanism.
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