The Bank of England has confirmed at the Finance Global Summit in London that the first application for a digital pound would be wholesale, even as the U.S. Federal Reserve plans to launch its FedNow system in July 2023.
According to Deputy Financial Stability Governor Sir Jon Cunliffe, the private sector could run the new interbank settlement system.
Wholesale Digital Pound Could Use New Real-Time Settlement System
The private sector approach would use a single ledger with tokenized reserves. An alternative approach would pair a distributed ledger with the Bank of England’s real-time gross settlement system, due for release next year.
He said that while stablecoins offer efficiency in payments, most remain outside the ambit of rules applied to commercial bank money. Therefore, he argues, banks cannot currently use them to settle transfers between themselves.
The upcoming Financial Services and Markets Bill would empower the Financial Conduct Authority to ensure best practices and market integrity, Cunliffe argued.
He said that stablecoins need to be backed by high-quality, liquid assets because it would not be possible to provide insurance for stablecoin deposits. Stablecoin transactions would likely first be limited to “avoid disruptive change that could threaten financial stability,” he further added.
Earlier this year, the U.K. economic secretary Andrew Griffith argued that the Bank of England backed a wholesale stablecoin settlement feature.
Last year, Checkout.com pioneered a stablecoin settlement feature for crypto-native companies. Checkout.com would acquire funds from payment providers Visa or MasterCard. They would later convert the money into a stablecoin for settlement with the merchant on crypto payment rails.
CEO Jess Houlgrave admitted that the feature was feasible mainly for B2B transactions with suppliers.
“I don’t think it’s going to take over the payment industry,” she conceded.
Crypto Firms Get No Joy While FSM Bill in Limbo
Until the new FSM bill becomes law, crypto firms appear locked in a symbolic war with the U.K.’s finance watchdog.
Only 41 out of 300 companies have satisfied the FCA’s anti-money laundering requirements and officially secured registration. Reasons cited for rejection include insufficient liquidity and risk management.
The FCA’s director of payments, Matthew Long, also said the current cost-of-living crisis in the U.K. elevated consumers’ risk of harm. He was critical of firms that did not engage in stress testing or scenario planning.
The FCA has threatened crypto firms with sanctions and closure for non-compliance.
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Source: https://beincrypto.com/uk-regulator-confirms-introduction-wholesale-digital-pound/