Bank of England plans to oversee stablecoin crash after TerraUSD crash

The Bank of England plans to oversee the collapse of stablecoin companies to guard against future cryptocurrency crises spilling over into the wider economy.

The Treasury announced on May 31 that the central bank would intervene if a stablecoin issuer reached “systemic scale failure.”

The announcement comes days after the implosion of TerraUSD and its peer cryptocurrency luna.

Crypto-assets will come under the Bank’s jurisdiction through a so-called special administration regime, the Treasury said, in response to a consultation on cryptocurrency regulation that began in January 2021 and ended in April this year.

Similar regimes are already used to handle bankruptcies of companies deemed systemically important to the wider economy and were introduced after the 2008 financial crisis.

The Bank should consult the Financial Conduct Authority before seeking a special administrative order.

Unlike more volatile cryptocurrencies like bitcoin, stablecoins like luna are meant to be pegged to the value of another currency, in this case the US dollar, often via an algorithm.

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Instead, luna crashed to 2 cents, causing a widespread fallout in cryptocurrency markets, pushing bitcoin below $30,000, after losing nearly a quarter of its value over the course of of last month.

“Since the original commitment to regulate certain types of stablecoins, events in the crypto asset markets have further underscored the need for proper regulation to help mitigate consumer risk, market integrity and stability. financial,” the response to the consultation — which referred to a specific cryptocurrency — said.

The government has launched a new consultation on the details of the plan, which marks a step forward for the regulation of crypto in the UK. Last year, the Bank and Treasury launched a task force to explore the possibility of a central bank-issued digital currency.

More recently, John Glen, Economic Secretary to the Treasury, explained in an April speech how the government wants the UK to be a global hub for crypto-assets “and a leading global location for start-ups and scaling up crypto businesses”.

“We want to play a leading role in harnessing the potential of blockchain and supporting the development of a better crypto ecosystem in the world,” Glen said.

To contact the author of this story with comments or news, email Alex Daniel

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