The UKās Treasury envisages a private wholesaleĀ stablecoinĀ launching before a central bank digital currency (CBDC). Enabling legislation, theĀ Financial Services and Markets BillĀ (FSM), covers stablecoins and is expected to pass around April. If the Bank of England launches a CBDC, the first use case is likely to be interbank settlements using a wholesale CBDC.
The news came from Andrew Griffith, the Economic Secretary of the Treasury and City minister, who was CFO and COO of broadcaster Sky until 2018. He was talking before the UKās Treasury Select Committee yesterday.
Fnality, a venture backed by 17 major financial institutions, will likely be the first āwholesale stablecoinā example, as the Treasury has already recognized it as a systemically important payment system. It provides an interbank payment system that uses a digital currency backed by deposits at the Bank of England, with plans for digital currencies in other jurisdictions, such as Europe and the United States. Fnality was due toĀ launch in October 2022 but was delayedĀ āto allow further time to complete relevant regulatory and onboarding work.ā The regulatory work relates to the FSM Bill.
Although Griffith also sees a CBDC targeting the same wholesale settlement use case, he predicted that the private version would launch first because it is already far down the road, and a CBDC is āfraught with public policy decisionsā.Ā
Member of Parliament (MP) Danny Kruger asked, āBut do you agree that if the government and the Bank issues its own digital currency, that would quickly crowd out the private competitors that might arise earlier? What would be the point of a private stablecoin if there was a wholesale sovereign currency?ā
Griffith responded, āI think itās too early to know that in truth. And what the different attributes of that would be.ā
In response to another question asking why itās bothering with stablecoins rather than proceeding to a wholesale CBDC he reiterated the public policy issues and said, āI donāt think thereās a particular trade off. Itās just that one (stablecoins) we can move forward with and should (do so) right now.ā
Moving on to a possible future retail CBDC, the Minister emphasized that any CBDC would not provide the central bank with access to private transaction details as banks would intermediate it.
The hearing also covered the regulatory agenda for DLT and crypto-assets covered in aĀ separate article.