Crypto stablecoins might need limits to avoid disruptions to financial stability, warns Bank of England

cnbc.com:

Regulators may need to introduce limits on the use of stablecoins in payments to prevent potential threats to financial stability, an official at the Bank of England warned Monday.

«The Bank of England's assessment is that over time, the financial stability risks should be manageable including risks from the impact on the banking system,» Jon Cunliffe, deputy governor of the Bank of England, said in a speech at the Innovate Finance Global Summit in London.

«But we cannot know for certain the extent and the speed at which payment stablecoins might be adopted and we may well need limits, at least initially, to ensure we avoid disruptive change that could threaten financial stability.»

That would mean significant implications for stablecoins such as Tether's USDT, Circle's USDC and Binance's BNB.

Stablecoins are cryptocurrency tokens that aim to mirror the value of traditional assets such as fiat currencies. Regulators are concerned about the assets that underpin their value, and the potential risks they may pose to the financial system if they become greater competitors to fiat money.

Volatility in the crypto markets raised questions about just how stable such tokens truly are after TerraUSD, a so-called algorithmic stablecoin, saw its value plummet to nearly zero cents when investors yanked out their funds due to fears over the technical model underpinning the token.

There is currently no framework for consumers to be reimbursed in the event of a stablecoin failure, unlike commercial bank money which is protected by deposit insurance up to £85,000 ($105,100). Cunliffe said this reinforced the need to ensure the assets behind a stablecoin are «at all times of sufficient value to meet redemption requests.»

Cunliffe said