The Bank of England has proposed imposing stricter regulations on stablecoins, a type of cryptocurrency designed to have a stable value. These new rules aim to address concerns about the stability and security of asset-backed stablecoins, whose value is pegged to a basket of reserve assets like traditional currencies.
The main focus of the regulations is on stablecoin issuers – companies that launch stablecoins. The proposals require these issuers to adhere to tighter reserve requirements, meaning they would have to hold a larger cushion of assets to guarantee the stablecoin’s value. Issuers would also be subject to enhanced risk management standards, regular audits, and stress testing.
Additionally, issuers would need to improve transparency about the composition of reserves backing the stablecoins. This change intends to ensure the stability of the peg to traditional currencies.
The Bank of England’s approach echoes skepticism expressed by the U.S. Federal Reserve about certain stablecoin models earlier this year. Regulators worldwide worry that the complexity of asset-backed stablecoins makes them inherently fragile.
While proponents argue tighter rules may stifle crypto innovation, regulators believe they are necessary to safeguard financial stability. The lack of global coordination on stablecoin policy also means regulatory approaches continue to diverge across countries.
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