Britain will focus first on regulating stable currencies rather than the broader cryptocurrency market, Britain’s financial services secretary said, citing the threat to competition if any major private effort takes over the emerging field.
Facebook’s move in 2019 to introduce its stablecoin Diem, then known as Libra, sparked concerns among governments and central banks that a major competitor could emerge in overnight payments.
“We need to manage competition risks,” said John Glenn at the City and Financial conference.
“There is potential for some companies to quickly achieve dominance and crowd out other players, given their ability to expand and connect to online services,” Glenn said.
“We believe the issue of intervention in the broader cryptocurrency markets is less urgent immediately.”
Stable currencies like Planned Diem, now run by an association that includes Facebook and is currently seeking approval in Switzerland, are designed to avoid the typical volatility of cryptocurrencies like Bitcoin.
Glenn said that stablecoins have become the largest component of cryptocurrencies in terms of volume, adding that although no systematic global player has emerged yet, this could change quickly.
The largest stable currency by market value, Tether, is a small fraction of Bitcoin’s volume and is sparingly used in trade. Most of the stablecoins are used for trade and investment.
Glenn said Britain will not inhibit innovation or be protectionist when it comes to using distributed ledger technology, which supports cryptocurrencies such as Bitcoin.
He said, “Here we have an opportunity that is only repeated once in every generation to achieve great strides in the efficiency of financial services, and ultimately benefit consumers and the economy as a whole.”
Separately, the FCA said it would not be appropriate to impose existing electronic money rules – “electronic money” – on stable currencies, as some are backed by several currencies or other assets.
“The electronic money system is not exactly the same as cryptocurrency,” Alex Roy, head of consumer distribution policy at the Financial Conduct Authority, said at the same conference.
Britain’s electronic money regulations allow cashless payments with card, phone or online money.