Sawt Falasteen - Bank of England seeks to 'build trust' in stablecoins

The value of most stablecoins -- a form of digital currency linked to real-world money -- is kept steady by being linked overwhelmingly to the dollar.

Britain wants to introduce rules in 2026 on sterling-backed stablecoins.

The Bank of England "proposals mark a pivotal step towards implementing the UK's stablecoin regime next year", Sarah Breeden, BoE deputy governor for financial stability, said in a statement.

"Our objective remains to support innovation and build trust in this emerging form of money."

Breeden said the "proposals are fit for a future where stablecoins play a meaningful role in payments, giving the industry the clarity it needs to plan with confidence".

The BoE proposals include allowing systemic stablecoin issuers "to hold up to 60 percent of backing assets in short-term UK government debt".

Meanwhile "to safeguard continued access to credit as the financial system gradually adapts to new forms of digital money, the Bank is proposing temporary holding limits of £20,000 ($26,370) per coin for individuals", the statement added.

This rises to £10 million for businesses, and with the possibility of higher amounts for larger organisations.

"These limits would be removed once the transition no longer poses risks to the provision of finance to the real economy," the BoE said.

The proposals are open for a consultation period running until February 10.

Britain's financial market regulator separately in May published its own proposals for the issuance of stablecoins.

These included firms that issue stablecoins safeguarding the cryptocurrency for clients, similar to the way banks do, by ensuring both security and easy access.

International regulatory safeguards are being reinforced, in the US and other countries.

Urgency kicked in after the 2022 collapse of the Terra stablecoin, which wiped out $40 billion in investors' money. Terra was an "algorithmic stablecoin" -- one not backed by a fiat currency or other traditional asset.

According to analysts, risks to stablecoins include an issuer deemed untrustworthy or the threat of hacking.

Any loss of trust in a stablecoin may meanwhile ripple beyond the crypto world, impacting the assets that back the tokens.

O.Farraj--SF-PST