The Bank of England recently announced at the Finance Global Summit in London that their first application of a digital pound would be in a wholesale setting. This was accompanied by an announcement from the Federal Reserve about the FedNow system being released in July of 2023. Sir Jon Cunliffe, deputy financial stability governor, suggested the private sector would be responsible for running the interbank settlement system. This would take advantage of tokenized reserves and could link to the Bank's real-time gross settlement system, which is set to be released in 2022.
Stablecoins offer several advantages to traditional payments systems, however they remain largely ungoverned as they are considered outside of the scope of regulations applicable to commercial bank money. To solve this, the Financial Services and Markets (FSM) bill has been proposed which would ensure consumer protection and best practice regulations. This would ensure customers deposits are safe and the stablecoins adopt a secure and traceable payment process.
The capability for the private sector to settle with cryptocurrency has been demonstrated. Last year Checkout.com pioneered the use of stablecoin settlement for crypto-native businesses. Funds were acquired from Visa or MasterCard, converted into an stablecoin and then transferred to the merchant on crypto payment rails. However, the CEO, Jess Houlgrave, has stated this is only applicable for certain types of transaction and whole not become a standard.
Currently over two thirds of crypto firms have failed to receive the Financial Conduct Authority's anti-money laundering requirements. Concerns over liquidity, risk management and cost of living has meant the FCA have been forced to exercise their power, often closing down any firms with non-compliant activity.
It is clear the Bank of England are exploring the use of digital currencies in the wholesale setting, but with the emergence of stablecoins and the FCA's recent activity it is clear further regulatory reform is needed. This ensures the public are protected, but also allows the private sector to take advantage of the potential digital currency has to offer.
Ivanna Patel
- 2023-04-17
Exploring The Use Of Digital Currencies in Wholesale Settings
The Bank Of England have announced that the first application of the Digital Pound would be in a wholesale setting, citing tokenized reserves and the potential for the private sector to run the interbank settlement system. Find out more about the potential for digital currencies and the regulations in place for consumer protection.
