Governor of the Bank of England Andrew Bailey said that bitcoin and stablecoins will require different approaches to regulation, with the latter warranting a “high bar,” while confirming a central bank digital currency was still also being looked at.

Speaking at The University of Chicago Booth School of Business in London on Tuesday, discussing recent changes in financial market activity and their impact on stability, Bailey reflected on potential changes in the crypto regulatory environment globally, particularly following the election of pro-crypto U.S. President Donald Trump.

“We don't yet know what the Trump administration is going to propose in terms of reforms on crypto regulation,” Bailey said, according to a transcript of a Q&A session following his speech provided by the BoE press office. “I think that the Biden administration, my impression is particularly the SEC, had got into a situation where it couldn't get a regulatory framework and was using action through the courts. And that was becoming more challenging, frankly. So there is a gap there in terms of having a consistent regulatory framework, but we don't know what that's going to be.”

As for the UK, Bailey divided the industry into two parts: the unbanked crypto world, the “bitcoin style” as he called it, and the world of stablecoins. Bailey described the unbanked crypto world as “pure investment risk,” given its volatility, which is not money in the classical sense, nor did he expect it to become so. However, he also said he had changed his view on cryptocurrencies, explaining he understood that people would take a portfolio approach to investing as long as they understand the risks involved.

The central bank governor said stablecoins were different because they do perform some of the functions of money, particularly in payments, and are backed, “unlike the bitcoin type.” However, Bailey noted stablecoins also show some characteristics of mutual funds and are “quite opaque” in that regard.

“So I think we do need to have sensible regulatory standards, particularly in that block, because if they're going to perform functions in the payments world, we are going to be very interested in that,” Bailey said. “I think we will have to set a high bar there because the expectations are that people using things for payments, are appropriately set like money.”

Regarding a potential central bank digital currency or "digital pound," Bailey explained there was a “big difference” compared to stablecoins, and the BoE is “still looking at it” in collaboration with the UK government.

“I think the question is how do we get the benefits of digital technology in the world of payments. If we were to assume there are no benefits of digital technology in the world of payments, we would probably be failing the test of imagination,” Bailey said, using the analogy of when Apple introduced the iPhone. Apple surveyed potential customers asking whether they would like a phone with certain characteristics, and most respondents said no — that’s a failure of imagination, Bailey said, and it is important to not just look at the negatives but the real benefits.

“Do we have to create a new form of central bank money, or is it going to be done in a commercial bank payment system, or do we need both?” he said. “Do we need to introduce central bank accounts to achieve those benefits? We must have it if it's proven that we need it.”

In January, the BoE said it is launching a "Digital Pound Lab" later this year as part of a blueprint for the design phase of a potential CBDC.

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