LONDON, April 17 (Reuters) – There may need to be limits initially on the use of major stablecoins for payments, and they should also be backed by high quality and liquid assets to protect consumers, Bank of England Deputy Governor Jon Cunliffe said on Monday.

Britain is due to adopt rules for regulating stablecoins, a form of cryptocurrency backed by an asset or fiat currency, which consumers could use to make payments digitally.

“Systemic stablecoins will need to be backed with high quality and liquid assets,” Cunliffe told a conference held by Innovate Finance, a UK fintech industry body.

“These could include either deposits at the Bank of England or very highly liquid securities, or some combination of the two. We are currently considering which of these options is most appropriate,” Cunliffe said.

Initially at least, it would not be possible to protect stablecoin deposits in the case of failure by using the industry-funded scheme which protects sterling bank deposits up to 85,000 pounds ($105,451.00), Cunliffe said.

“This reinforces the need to ensure that the backing assets are at all times of sufficient value to meet redemption requests. And it also highlights the potential role of capital requirements,” Cunliffe said.

The BoE has concluded that over time the risks to financial stability from stablecoins should be manageable.

“But we cannot know for certain the extent and the speed at which payment stablecoins might be adopted and we may well need limits, at least initially, to ensure we avoid disruptive change that could threaten financial stability,” Cunliffe said.

As rules for payment stablecoins are developed it was important to also develop how tokenised bank deposits could be regulated to allow banks and non-banks to develop payments using new technologies, he said.

The Bank intends to set out its approach on this alongside a consultation on the payment stablecoin regime, Cunliffe said.

($1 = 0.8061 pounds)

Reporting by Huw Jones, Editing by Iain Withers

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