A new report from Imperial urges the UK to follow the US in embracing stablecoins
Stablecoins, a form of digital currency pegged to an existing local currency, are the big winner from the recent boom in crypto. Globally, the number of stablecoins has risen from one to 176 since 2014, and they are now worth a combined $280bn. Coinbase forecasts that this could grow to $1.2tn by 2028. Most stablecoins are based in the US, where the Trump administration is a cheerleader. Britain, despite its public ambition to be a hub of global crypto innovation and trading, is not yet a meaningful player. The British crypto industry blames this on the failure to put in place a viable regulatory framework – and fears are growing that new rules being prepared by the Bank of England will permanently freeze Britain out of the stablecoin business.
The Bank is said to plan strict limits on how much sterling-based stablecoin any individual or business can hold, reported to be £20,000 and £10m, respectively. Dipping a toe in the water before jumping in may seem like British common sense. But as is argued persuasively in Mind the Gap: How Stablecoins can Secure the UK’s Financial Future, a new report by Imperial Business School, unless Britain moves fast to a permissive regulatory regime for stablecoin, it could miss a huge opportunity. Stablecoins work when their peg to the underlying currency is credible.
The Imperial authors argue that the Bank is trying to play it too safe and should follow the US in allowing sterling stablecoins to be backed by “almost risk-free” assets, such as short-term government debt. On the other hand, the history of finance is full of catastrophes caused by people confusing almost risk-free and truly risk-free. The Bank could remove much of the need for privatising money creation by getting on with its plans to issue a well-designed, official digital pound.
Photograph by May James/Sopa Images/Getty Images
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