Introduction to Retail Payments Strategy
The Bank of England is taking a leading role in shaping the future of retail payments in the UK. Recently, Deputy Governor Sarah Breeden outlined the central bank’s plans for incorporating tokenized deposits and stablecoins into its retail payments strategy. This move is part of a larger public-private partnership aimed at designing a new retail payment infrastructure, with the private sector responsible for building and funding the infrastructure.
Multiple Types of Money for Retail Payments
The Bank of England envisions a system that supports multiple types of money for both online and point-of-sale (PoS) transactions. This includes conventional bank deposits, tokenized deposits, systemic stablecoins, and a potential future retail Central Bank Digital Currency (CBDC). Notably, Breeden emphasized the importance of systemic stablecoins, which are designed for real-world payments rather than cryptocurrency transactions. To qualify as systemic, stablecoins must meet certain criteria, although the specific size qualification has not been specified.
Regulation of Systemic Stablecoins
The central bank has made it clear that any stablecoins primarily used in the crypto sector are unlikely to be considered systemic. Systemic stablecoins will be jointly regulated by the Bank of England and the Financial Conduct Authority (FCA). These stablecoins will have different reserve requirements compared to non-systemic stablecoins, with at least 40% of reserves required to be held at the central bank (unremunerated). This stricter regulation is intended to ensure stronger risk management and financial stability.
Importance of Risk Management
The reason for restricting the type of stablecoins supported by the new retail infrastructure is largely due to concerns over risk management and financial stability. By regulating systemic stablecoins more tightly, the Bank of England aims to prevent potential risks to the financial system. This approach will help to protect consumers and maintain trust in the retail payment system.
Conclusion
In conclusion, the Bank of England’s plans for incorporating tokenized deposits and stablecoins into its retail payments strategy mark an important step forward in the evolution of the UK’s payment system. By supporting multiple types of money and regulating systemic stablecoins, the central bank is working to create a more robust and resilient payment infrastructure. As the UK continues to develop its retail payment strategy, it will be important to balance innovation with risk management and financial stability.
