In a press conference in April 2022 for the British Chancellor, Rishi Sunak announced his intention to make the UK a “global gateway for cryptoassets technology.” Simply put, he wants the country to become an interesting place for cryptocurrency businesses to operate.
For the government, this requires a fair balance between preventing financial fraud and protecting consumers, and allowing cryptocurrencies to grow. If all goes to plan, there will be more to do with the sector that could boost the UK economy.
These are early days, and many central banks and investors are unaware of the role cryptocurrencies play in the nation’s financial system. But Sunak’s plans have shown some interesting ideas, including the removal of tax barriers, and the development of a non-fungal signal (NFT) with the Royal Mint.
But what’s important is the idea of bringing a kind of cryptocurrencies, “stablecoins,” into the realm of UK banking regulation. Stablecoins are widely believed to be on the safe side of the region, where the popular volatility of other cryptocurrencies such as Bitcoin has been replaced with a reliable one.
So where Bitcoin’s value derives from levels of trust and demand, stablecoins are supported by other currencies. Usually, this is the traditional currency (the US dollar), but some are related to commodities such as gold. Either way, the goal is the same – to keep their value as close as possible, to use the more efficient stablecoins as a reliable exchange.
Stablecoins may have attracted the UK government because they offer fast trading, at a low price and unlimited. This allows users to quickly make global trades with people and businesses, without the need to convert funds into a local tender.
The other interesting thing about stablecoins is that they know each other well, every single trade is recorded and seen by the public. They are (in general) under central control, just as traditional banks control the accounts of customers.
Good idea, while the UK is putting its toe in cryptocurrencies, it is stablecoins that are the best. Another way is to introduce a digital central bank currency, as China is doing, but this is time and cost. A well -regulated stablecoin is available in the UK in the region and the Bank of England will decide whether to secure a digital currency of its own.
But the lack of details about UK applications – what the process will look like and what to expect to get – is worrying. So too has the lack of success in creating a large part of the new financial world.
For example, there have been promises since 2015 to regulate cryptoassets, with fewer than tax problems and to prevent future investment – and there have been two serious effects on the region.
The UK’s current financial services regulator has now revealed that it is more focused on preventing the crisis than helping the crypto technology grow. Perhaps the UK is not as comfortable with innovation and crypto technology as it is.
The bank also did not provide specific details on the nature of the stablecoin settlement. To encourage greater use of stablecoins, it is necessary to bring in some form of registration system and a method for paying customers if the stablecoin runs out. If this is not the case, a stablecoin could actually collapse, seriously hurting the economy, the broad crypto sector and single investors.
It’s also doubtful how much the UK could become the world’s crypto leader, as stablecoins are the most expensive pegs, to some degree, to the US currency. (Although this could change as the US and EU tighten restrictions on cryptocurrencies.)
The UK is likely to have a better position in the safe (and secure) world of stablecoins and enjoy significant benefits for the pound as a primary currency. But the truth is, there is more than what is currently advertised to make a meaningful progress. They sound like no attempt to be left behind by other countries, without much effort in terms of investment and resources.
The UK is developing rules for some cryptocurrencies amid global turmoil
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