Blog: BOE Issues Paper Exploring New Forms of Digital Money – Regulation Asia

The BOE seeks feedback on the discussion paper as it examines how CBDCs and stablecoins could impact the financial system and wider economy.

 The BOE (Bank of England) has published a discussion paper aimed at broadening the debate around new forms of digital money, and is seeking views on its emerging thoughts on the subject.

The new forms of digital money could be publicly or privately provided, including CBDCs and stablecoins. The discussion paper seeks feedback on these new forms of digital money and their relation to existing national currencies, as well as what distinguishes them from other digital assets using new technologies.

The BOE proposes to explore:

  • The role of money in the economy, examining existing forms of money and their uses, and how any move towards new forms of digital money could impact the financial system and wider economy through the lens of money and credit creation.
  • The challenges and opportunities presented by systemic stablecoins, while still actively exploring the opportunities and risks associated with a CBDC.
  • An illustrative scenario to identify the demand for new forms of digital money modelled by bank staff, including factors such as convenience, trust, and perceived safety in determining demand for new forms of digital money.
  • Implications for macroeconomic stability, focusing specifically on five areas: public confidence; banking sector liquidity resilience; credit conditions; money market functioning, and monetary policy.
  • The regulatory environment, to lay the groundwork for innovation and ensure a systemic stablecoin can safely operate in the UK. In January, HM Treasury consulted on the UK’s overall regulatory approach to cryptoassets and stablecoins. The discussion paper builds on that work.

The paper also outlines the expectations for systemic stablecoins previously set out by the Financial Policy Committee (FPC); the first addressing the financial stability risks associated with the payment functionality of stablecoins, and the second expectation relating to the use of stablecoins as money.

Additionally, the paper explores a range of regulatory models that could address both payments-related and money-creation risk. The BOE will consult on a specific regulatory framework that would apply to stablecoins, informed by the consultation.

The discussion paper, available here, is open for comment until 7 September.

The BOE has also separately identified five core principles to guide its future exploration of CBDC, based on responses to its March 2020 discussion paper, which showed strong agreement that the central bank should, at the very least, be carefully studying CBDC regardless of whether one was ultimately likely to be needed or desirable.

The principles will be given particular regard in the BOE’s future exploration around CBDC. The principles are:

  • Financial inclusion: Any CBDC should have a high degree of accessibility to people, regardless of their geographic location in the UK, age, socioeconomic status, digital skills or disability.
  • The CBDC ecosystem should be competitive, with a diverse set of participants supporting innovation, to offer the best chance to deliver the benefits of a CBDC.
  • An assessment of the net benefits of a CBDC should consider to what extent they could be delivered by private sector proposals.
  • A CBDC should seek to protect users’ privacy. As with existing forms of digital payments, there are important legal compliance arrangements that a CBDC would need to meet, such as requirements relating to AML/CTF and sanctions.
  • The BOE is primarily focused on possible benefits CBDC might bring for payments. It is also considering the possible opportunities that a CBDC may offer for monetary and financial stability.

The summarised responses to the March 2020 discussion paper are available here.

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