1/ NOT MUCH HAS BEEN WRITTEN yet abt this #stablecoin paper by @bankofengland June 7. I'm just getting to it. Big deal.π§"HMT propose to bring systemic #stablecoins into BOE's regulatory remit, in line w/ its responsibilities for systemic payments systems"
bankofengland.co.uk/paper/2021/newβ¦
bankofengland.co.uk/paper/2021/newβ¦
2/ Yep, I've warned this is an issue central bankers have w/ #stablecoins issued by non-banks:
"A large-scale displacement of commercial bank money by new forms of digital money cld mean a higher fraction of money in economy backed by high-quality liquid assets (HQLA)."
"A large-scale displacement of commercial bank money by new forms of digital money cld mean a higher fraction of money in economy backed by high-quality liquid assets (HQLA)."
3/ "Commercial banks would have to adapt their balance sheets in response to deposits leaving the banking system...the Bank may wish to limit migration, so financial system could adjust to the presence of new forms of digital money in an orderly fashion." Oh boy, BOE went there.
4/ Yep: "There could also be implications for money markets. The smooth functioning of these markets is important for the Bank to meet its objectives. Any large-scale reallocation of cash around the financial system has the potential to impact how money markets function."
5/ "The expectations aim to ensure the safety of #stablecoins as an alternative to both existing payment systems and commercial bank money."
6/ "...a key requirement will be to ensure that, unless the #stablecoin is operating as a bank, the backing assets for stablecoins cover the outstanding coin issuance at all times." Um...the same should be true if it's operating as a bank too--otherwise too much bank run risk.π€
7/ Side comment: #stablecoins settle in minutes w/ irreversibility. Banks just aren't used to dealing in products w/ such settlement characteristics (fast speed + irreversibility). Faster speed of settlement of anything=bigger risk of a bank run, by def'n. But BOE didn't go there
8/ Regulation: "One option is for a stablecoin issuer to be subject to the current banking regime. This is flexible and risk sensitive and would adapt to reflect the risks of stablecoins. However, it may not be the best fit for firms such as stablecoins that do not lend."
9/ cont'd: "There may be a case for offering an alternative model that restricts the assets that #stablecoins can use to back their liabilities. This would rebalance the focus towards those risks most relevant to the stablecoin issuer... operational and outsourcing risks."
10/ "A model that restricts stablecoins to holding liquid assets cld allow a regulatory approach that is more aligned to risks. A model in which liabs are backed by central bank reserves wld eliminate many risks for coinholders, but still expose stablecoins to operational risk."
11/ "a model in which liabs are backed by commercial bank deposits wld lead to greater tiering in banking system...a symbiotic relationship btwn stablecoin & its custodian bank can result in higher fin stability risks due to interconnectedness btwn systemically important firms."
12/ "Any regulatory model for stablecoins wld further need to be supported by arrangements by which issuers can obtain liquidity support from the Bank. This is important for ensuring liquidity problems do not result in failure."
13/ "There is a strong case for considering value of transitional arrangements that aim to ensure that new forms of digital money can emerge without threatening monetary and financial stability. The Bank is considering the need for the use of limits during any transition period"
β’ β’ β’
Missing some Tweet in this thread? You can try to
force a refresh
γ
