The United Kingdom has been slow to adopt innovations in stablecoins. While frequently lumped alongside crypto, stablecoins are better described as the future of payments and transfers: improved technology to the current tech rails that enable businesses and consumers to pay bills, purchase items, and transfer value wherever needed.
Today, the stablecoin market is dominated by digital dollars, with Tether and Circle (NYSE:CRCL) leading the race. While initially providing value for crypto traders who need a way to move money to buy crypto and then park it when they want to reduce risk, stablecoins are quickly becoming a path for other uses today. At the same time, dollar-based stablecoins are expected to support the dollar as the reserve currency of choice while increasing demand for US Treasuries (government bonds), which is good for the US economy.
Today, the House of Lords has published a report entitled “Stablecoins: waiting for regulation,” issued by the House of Lords Financial Services Regulation Committee. The report acknowledges the dominance of digital dollars and the tepid growth among UK participants, noting that only one significant pound-based stablecoin (tGBP) has emerged, with a mere $1.53 million in market cap. While others are in the queue to issue digital pounds, the contrast is telling. The UK must do more to enable stablecoin innovation.
The report notes that advocates believe “stablecoins have the potential to offer a range of benefits to both businesses and consumers. They could bring fast and low-cost payment options, greater efficiency in settlement, and innovations such as programmable payments, which could complement other forms of money and drive competition in the payments sector.”
At the same time, some observers fear that stablecoins will bring financial stability risks and facilitate financial crime. Or, even worse, “the disintermediation of the traditional banking sector.”
Concerns include redemption requirements deemed too burdensome and vague regulatory proposals.
The document declares:
“The UK has a mature and globally respected financial services industry, and its regulatory regime should be designed to allow a GBP stablecoin market to establish and grow, so that businesses can take advantage of the emerging opportunities this market could bring. But the UK is lagging behind. The Government and regulators must adhere to the timelines they have set out, and should carefully consider our recommendations on how aspects of the proposed regulations might be adjusted to bring the certainty and confidence needed for the GBP stablecoin market to develop.”
Some industry insiders challenge stablecoin proposals. The consideration that issuers of systemic stablecoins must hold 40% of funds in “unremunerated” central bank accounts would make issuance less appealing.
Proposed limits on stablecoin holdings would clearly hobble the digital money, impacting global competitiveness.
If the UK wants to seek relevance, it must be cognizant of global competition. While concerns about risk are warranted, hypothetical cataclysmic predictions could take things too far.
Coinbase Europe’s Head of Policy, Katie Harries, shares:
“The Bank of England is currently proposing rules that would place more severe limitations on stablecoins than any other jurisdiction. Today’s Lords report points this out, and rightly so. Regulation must be proportionate, evidence-based, and designed to address actual risks rather than hypothetical future scenarios, as is currently the case,” says Harries. “The Bank is publishing draft rules later this month and it’s so important that these rules allow stablecoins to compete on a level playing field with other forms of digital money. The UK needs GBP stablecoins to grow and operate at scale — the UK’s rules must not cap their future before they are even off the ground.”
The Bank of England is expected to release draft rules later this month. If rules emerge that are overly restrictive, the UK may find itself at the back of the line, once again a follower rather than a leader.