A senior figure at the Bank of England has argued that there may need to be limits placed on the use of major stablecoins for payments.

Speaking at the Innovate Finance Global Summit, BoE deputy governor Jon Cunliffe also said that stablecoins should be backed by high quality and liquid assets to ensure consumer protection.

The deputy governor praised stablecoins, a form of cryptocurrency backed by an asset or fiat currency, for offering "the possibility of greater efficiency and functionality in payments," but said that due to sitting outside of the regulated framework "it is extremely unlikely that any of the current offerings would meet the standards for robustness and uniformity we currently apply both to commercial bank money and to the existing payment systems that transfer commercial bank money between the parties to a transaction.”

As such, he argued that stablecoins would need to be backed with high quality and liquid assets. “These could include either deposits at the Bank of England or very highly liquid securities, or some combination of the two,” he said, adding that the BoE is "currently considering which of these options is most appropriate."

Cunliffe warned that the UK's central bank would be unable to provide stablecoins with industry funded protection against the failure of the coin. He also said that other important questions need to be resolved "such as whether there should be limits, initially at any rate, on stablecoins used for payments," and “whether the requirement to be redeemable in fiat money, on demand and at par and the backing asset model will be sufficient to ensure uniformity of sterling stablecoins with each other and with other forms of sterling money.”

Ultimately, Cunliffe underlined that the BoE will use its powers for stablecoins used for payments, rather than for other purposes such as an investment product or part of the credit creation process.

The BoE is currently undergoing an evaluation of how it can implement a central bank digital currency (CBDC) aka the digital pound. Of this, Cunliffe said that policy makers are looking at using a digital pound in wholesale markets, indicating that the government is edging closer to endorsing the concept.

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