The UK Treasury envisions the launch of a private wholesale stablecoin ahead of a central bank digital currency (CBDC). The enabling legislation, the Financial Services and Markets (FSM) Bill, covers stablecoins and is expected to pass around April. If the Bank of England launches a CBDC, the first use case is likely to be interbank settlements using a wholesale CBDC.

Andrew Griffith, Treasury financial secretary and city minister, who was chief financial officer and COO of broadcaster Sky until 2018, broke the news. He spoke before the UK Treasury Select Committee yesterday.

Fnality, a company backed by 17 major financial institutions, will likely be the first example of a ‘wholesale stablecoin’ as the Treasury has already recognized it as a systemically important payment system. It provides an interbank payment system using a digital currency backed by deposits at the Bank of England, with plans for digital currencies in other jurisdictions such as Europe and the United States. Fnality was due to launch in October 2022, but was delayed “to allow more time to complete the relevant onboarding and regulatory work.” Regulatory work is related to the FSM bill.

Although Griffith also sees a CBDC targeting the same wholesale liquidation use case, he predicted that the private version would launch first because it is already so far along, and a CBDC is “burdened with public policy decisions.”

Member of Parliament (MP) Danny Kruger asked: “But do you agree that if the government and the Bank issue their own digital currency, that would quickly crowd out private competitors that might emerge earlier? What would be the point of a private stablecoin if there was a wholesale sovereign currency?

Griffith responded: “I think it’s too soon to know that for real. And what would be the different attributes of that.”

In response to another question about why he is bothering with stablecoins instead of proceeding to wholesale CBDC, he reiterated the public policy issues, saying, “I don’t think there is any particular trade-off. It’s just those (stablecoins) that we can move forward with and we should (do) right now.”

Turning to a potential future retail CBDC, the Minister emphasized that any CBDC would not provide the central bank with access to private transaction details, as the banks would act as intermediaries.

The hearing also covered the regulatory agenda for DLT and crypto assets which are covered in a separate article.