Bank of England to bailout 'systemically important' stablecoins in case of collapse

UK government draws up new plans

Valeria Martinez
clock • 1 min read
Under the proposals, the government would provide the Bank of England with powers to manage the collapse of a big stablecoin issuer by using a "special administration regime" to reduce the impact on the real economy. 
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Under the proposals, the government would provide the Bank of England with powers to manage the collapse of a big stablecoin issuer by using a "special administration regime" to reduce the impact on the real economy. 

The UK Treasury will give the Bank of England authority to address the collapse of failed systemic stablecoins, under proposals being drawn up by the government to mitigate future fallouts in the cryptomarkets.

In a consultation paper published yesterday, the Treasury said a failure of a systemically important stablecoin could pose "a wide range of financial stability as well as consumer protection impacts".

Under the proposals, the government would provide the Bank of England with powers to manage the collapse of a big stablecoin issuer by using a "special administration regime" to reduce the impact on the real economy. 

"Since the initial commitment to regulate certain types of stablecoins, events in cryptoasset markets have further highlighted the need for appropriate regulation to help mitigate consumer, market integrity and financial stability risks," the Treasury said. 

Tremors through stablecoin market continue as tether suffers $7bn sell-off

The Treasury added the failure of a systemic firm that operates a stablecoin could threaten the "continuity of services critical to the operation of the economy and access of individuals to their funds or assets".

Stablecoins are said to be tied to the value of real-world assets and are frequently supported by real-world stores of value, such as Tether, which is backed in part by dollar reserves.

However, Terra USD, an algorithmic stablecoin created to track the value of the US dollar, plunged in value in May. Tether, the world's largest stablecoin, also lost its dollar peg after investors pulled more than $3bn tokens in a single day.

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