LONDON — Britain’s financial watchdogs have been on a crypto journey — with a little help from Donald Trump.  The Bank of England publishes its long-awaited rules for stablecoin Monday. Two years after the central bank’s Governor Andrew Bailey dismissed the virtual currency — a theoretically more stable form of crypto — as “not money,” its rulebook is now expected to get a cautious welcome from an industry that’s been lobbying hard for a rethink. It would mark quite a shift from the U.K. central bank. Stablecoins “are not robust and, as currently organized, do not meet the standards we expect of safe money in the financial system,” Bailey told a City of London audience in 2023.  Now his top officials herald a “fabulous opportunity.”  The Bank chief’s initial position — that he doesn’t see stablecoins as a substitute for commercial bank money — has put him at odds with the U.K. Treasury, which is on an all-consuming mission to get the sluggish British economy moving. Chancellor Rachel Reeves wants the U.K. “at the forefront of digital asset innovation.”  The United States crypto lobby, fresh from several wins stateside, spied an opportunity. Exploiting those divisions — and pointing to a more gung-ho approach from Trump’s U.S. — has allowed firms to push for a British regime that more closely aligns with their own.  Monday could be a very good day at the office.  TREADING CAREFULLY Stablecoins are a type of cryptocurrency pegged to a real asset, like the dollar, with the largest and best-known offering being Tether. They’re seen as a more palatable version of crypto, and are used by investors to buy other cryptocurrencies, or allow cross-border payments.  The pro-stablecoin camp says their development is necessary to improve payments and overseas transactions for businesses and consumers, particularly as cash usage declines and sending money abroad remains clunky and expensive. If done well, a stablecoin could maintain a reliable store of value and be a viable alternative to cash.  Stablecoins (USDT) are a type of cryptocurrency pegged to a real asset. | Silas Stein/picture alliance via Getty Images Those more cautious, including the BoE, warn there are risks for the wider financial system including undermining public confidence in money and payments if something goes wrong.  And stablecoins are not immune to things going wrong: In 2022, the Terra Luna token lost 99 percent of its value, along with its sister token TerraUSD, a stablecoin which went from being pegged to the dollar on a $1-1 TerraUSDbasis, to being valued at $0.4. Tether also fell during that time to $0.95.  Other central bankers seem to agree with Bailey’s early caution. The Bank for International Settlements, a central bank body, issued a stark warning on stablecoins in June, saying they “fall short” as a form of sound money.  There are also concerns such coins are used to skirt money-laundering laws, with anti-money laundering watchdog the Financial Action Task Force, warning that most on-chain illicit transactions involved stablecoins. The EU has tough regulation in place for digital assets. The bloc prioritizes tighter control over the market than the U.S., with stricter rules on capital and operations.  That’s in stark contrast to the U.S., which passed its own stablecoin regulation — the GENIUS act — earlier this year, which is much more industry-friendly. Donald Trump, whose family is building its own crypto empire, has described stablecoins as “perhaps the greatest revolution in financial technology since the birth of the Internet itself.”  That’s put post-Brexit Britain in a bind: align with the EU, the U.S., or go it alone?  “The U.K. is a bit caught,” a former Bank of England official who now works in digital assets said. They were granted anonymity, like others in this article, to speak freely. “It doesn’t have the luxury of completely creating a bespoke regime. It can do, but essentially, no one’s going to care.” AMERICAN PUSH For a Labour government intent on deregulating for growth, aligning with the U.S. was immediately a more attractive proposition.  Warnings came from the City of London, Britain’s financial powerhouse, that the government would need to embrace crypto and stablecoin for the U.K. to become a global player. Domestic financial services firms wrote to the government calling for it to align its regime with the U.S., talking up “once-in-a-generation opportunity” to establish the future rules for digital assets.   “Securities are getting tokenized,” said one former Treasury official, now working in the private sector. “Bank deposits are getting tokenized. If we don’t build a regime that is permissive enough [to make the U.K. attractive], then the City’s relevance will diminish as a consequence.”  For the pro-crypto brigade, the BoE has been the main hurdle in achieving a U.S.-style, free-market stablecoin rulebook. Reform UK leader Nigel Farage, whose party is currently leading in the polls, accused Bailey of behaving like a “dinosaur.  For the pro-crypto brigade, the BoE has been the main hurdle in achieving a U.S.-style, free-market stablecoin rulebook. | Niklas Helle’n/AFP via Getty Images “The Bank’s really got itself into a twist on this one. From what I understand from people who have been at the Bank, this is coming from the top,” said the former BoE employee quoted above.  “Andrew Bailey has made it publicly clear for some many months now that he is sceptical about the two new alternative forms of money, which is stablecoins and central bank digital currencies,” said a financial services firm CEO.  In recent weeks, however, Bailey and his colleagues have softened their rhetoric as well as indicating a relaxed policy is forthcoming.  Sarah Breeden, Bailey’s deputy governor for financial stability, has repeatedly said any limits on stablecoin will be temporary, and recent reports suggest there will be carve-outs for certain firms. Other BoE officials have also backed away from tougher rules on the assets which must be used to underpin the value of a stablecoin.  A second former BoE employee, who now works in the fintech industry, said Bailey was “under a huge amount of pressure, from the government and the industry. He is worried about looking like he is just anti-innovation.”  The BoE declined to comment. The Treasury did not respond to a request for comment. US interest  A state visit by Trump to the U.K. this fall appeared to help shift the debate.   In late September, the Trump administration and the British government agreed to explore ways to collaborate on digital asset rules.  Treasury Secretary Scott Bessent and Reeves announced that financial regulators and officials from the U.S. and U.K. would convene a “Transatlantic Taskforce for Markets of the Future.”  During Trump’s visit, Bessent held a financial services roundtable in London with key figures from industry. “There was a steady slate of crypto attendees there, and the discussion predominantly focused on stablecoins,” said the former Treasury official.  “Rachel Reeves met Scott Bessent and seems to have been told, actually, we’d like you to be much more supportive of … digital assets,” the financial services CEO added.   The U.K. Treasury has been “pretty proactive” in taking meetings with crypto firms and traditional finance firms interested in crypto, in the New York consulate and British embassy in Washington, added the former Treasury official.   The BoE too met with the crypto industry and U.S. politicians, with Breeden at the helm of discussions while she was in the U.S. in October for IMF-World Bank meetings, in an effort to better understand U.S. stablecoin rules.  Last month saw a major olive branch.  A Bailey-penned op-ed in the Financial Times saw the Bank chief recognize stablecoins’ “potential in driving innovation in payments systems both at home and across borders.”   Going further still, Breeden told a crypto conference just this month that synchronization between the U.S. and the U.K. on stablecoin marks a “fabulous opportunity.”  She has heavily indicated there will be more than a slight American influence when she announces the proposals on Nov. 10. “It’s a fabulous opportunity, to reengineer the financial system with these new technologies,” Breeden told the Nov. 5 crypto conference.  “I think a lot of people have observed that it was the U.S. crypto firms that really pushed the dial on getting political will, whereas British firms haven’t been able to secure that,” the former Treasury official said.

BRUSSELS — Global finance regulators’ failure to impose sufficient rules on cryptocurrency could threaten the world’s financial stability, global risk body the Financial Stability Board has warned. Reviewing the rollout of a global framework for crypto rules, the FSB said there are “significant gaps and inconsistencies” in implementing the rules, which could “pose risks to financial stability and to the development of a resilient digital asset ecosystem.” On the regulation of stablecoins, which are virtual currencies pegged to real-world assets, the FSB said regulation is “lagging.” Because of the international, decentralized nature of financial technologies like crypto, having gaps in global rules is an issue as providers can go wherever the rules are the most lax, which “complicates oversight,” the review said. It added that global cooperation on regulating the currencies is “fragmented, inconsistent, and insufficient” to address their global nature. The FSB also flagged gaps in oversight of crypto service providers, saying supervision of “potentially higher risk activities, such as borrowing, lending, and margin trading, is often lacking” and enforcement can “lag behind regulatory development.” The review recommended that governments implement the global crypto framework fully. It also said they should “conduct an assessment of the scale and nature of cross-border crypto-asset activities into and out of their jurisdictions” at the “appropriate time.” Earlier this week, FSB chair Andrew Bailey warned G20 finance ministers and central bank governors that stablecoins are a potential area of vulnerability for the financial system.

As bronzed Eurocrats return from summer holidays to face the usual September onslaught of lobbyists in Brussels, this year they’ll find an unlikely interest group waiting at their doors: the European Central Bank. The hot topic on the ECB’s agenda is the digital euro — a proposed electronic version of the physical euro that has banks and right-leaning politicians fuming. The debate is heating up as European Union member countries try to reach a final agreement on how the digital euro should work by the end of this year. But the European Parliament also needs to approve it, with serious talks likely to heat up over the fall. At its core, the digital euro is a new payment method with an undertone of geopolitics. Without virtual banknotes and coins, the ECB fears its monetary authority will disintegrate in a digital age where cash payments are declining. It’s pushing the digital euro because it argues that sitting idle makes the European Union too reliant on U.S. credit card giants Mastercard and Visa to handle cross-border transactions. Worse yet, data-hungry tech companies such as Meta, Apple or X could try for a piece of the payments pie, leaving Europe at the mercy of foreign interests. The arrival of United States President Donald Trump has only heightened anxieties, especially since the White House has shown little restraint in pressuring companies to achieve his goals. Trump also signed the Genius Act, which aims to turbocharge certain crypto assets called stablecoins. Stablecoins differ from wildly fluctuating cryptocurrencies like Bitcoin because their value is pegged to a fiat currency, in most cases the U.S. dollar. This makes stablecoins far more … well, stable, than other cryptocurrencies, meaning they represent a genuine threat to old-fashioned currencies like the euro — particularly for cross-border payments. The pressure is on. The ECB is ramping up its lobbying program, participating in a series of seminars for members of the European Parliament in September — followed by a visit from the central bank’s chief cheerleader for the project, Piero Cipollone. ECB executives will also have the chance to champion the digital euro later this month when EU finance ministers and central bankers gather in Copenhagen. But for once, EU finance ministers are not the ECB’s main concern; its chief target is a Spaniard by the name of Fernando Navarrete. A central banker-turned-center-right EU lawmaker, Navarrete is in charge of negotiating the digital euro’s legal framework through the Parliament. The problem for the ECB is that Navarrete is seriously skeptical. Here are four things you need to know about the looming fight over the digital euro. WHAT IS THE DIGITAL EURO? Simply put, the digital euro is a virtual extension of the EU’s single currency.  The concept of central bank digital currencies, or CBDC, has existed for many years, although it has rarely made it past the conceptual phase. The ECB got serious about creating one in 2019 after Facebook owner Meta tried and failed to introduce its own global virtual currency for its 3 billion users in the form of a stablecoin. The digital euro would be backed by the ECB and would hold the same value as real money, complementing cash and cards. People would use the virtual money to pay for goods and services, or lend it to friends. The difference is that digital euros would most likely be stored on a wallet-like application on smartphones. The ECB would also keep its own record of the virtual money people hold, making it impossible to lose. HOW IS THAT DIFFERENT FROM TODAY’S DIGITAL PAYMENTS? The big difference is that the digital euro would be central bank-issued legal digital tender that, in theory, doesn’t require a commercial bank’s involvement — which is quite revolutionary. Money held in a commercial bank account is not sitting in a vault waiting for you to claim it. Most of it has actually been lent out in the form of mortgages and other types of loans, with only a small portion of it sitting in cash reserves. The money you think you have in your bank account isn’t actually there; it’s really just the bank’s promise to pay you that money, should you decide to claim it. But banks are counting on customers not claiming it — at least not all at once. Without safeguards in place, a bank would collapse if all its customers demanded all their cash at once. But for once, EU finance ministers are not the ECB’s main concern; its chief target is a Spaniard by the name of Fernando Navarrete. | David Zorrakino/Europa Press via Getty Images The proposed digital euro is entirely different. It is sitting in a (digital) vault waiting for you. No one else will have borrowed it to buy a house or start a business. One digital euro in your digital wallet would be as legally real as one physical euro in your pocket. And because the ECB would have a record of how many digital euros you possess, this makes it even more secure than physical cash — which can more easily be stolen, lost or destroyed. Payments by digital euro would therefore (theoretically) be simpler than today’s digital payments. Rather than your bank having to settle a mind-bendingly complex and behind-the-scenes transaction with the vendor’s bank using third-party payments companies (like Visa or Mastercard), you would simply send the digital euros from your digital wallet directly to the vendor’s digital wallet. It would be just like handing over cash. On paper, no banks or payment companies need be involved — although in practice, they would need to participate in the digital euro’s distribution. In other words, a digital euro would break the private sector’s hold on digital payments. WHERE IS THE PROPOSAL AT? Stuck in Brussels. Although the digital euro is the ECB’s baby, EU governments and members of the European Parliament are the ones tasked with putting the project’s legislative framework together. That has blended politics into the debate, muddying the waters from the perspective of technocrats. MEPs, for example, have heeded concerns that governments could use the digital euro for snooping on people’s payments — a notion the ECB has trashed.  Many within the banking and financial industry, meanwhile, have branded the project “a solution looking for a problem” amid fears they’ll foot the bill for implementing the infrastructure needed to run the digital euro. Its introduction could also stifle future innovation by dictating the future direction of the EU’s payment industry, they argue. Industry lobbying has paid off. Navarrete has called the digital euro “a last resort” and “a nuclear threat” that will force the industry to develop a cross-border payment system before the bill is ready. WILL THE ECB SUCCEED? The Parliament is only one beast the ECB has to contend with. Government officials in the Council of the EU, which represents the various member countries of the bloc, aim to finalize their negotiating position on the digital euro bill by year’s end. Their involvement has the ECB on edge as well — especially as the Council wants to have the last say on how many digital euros a citizen can hold at any one time, to placate lender fears of a bank run. Another ongoing debate is whether banks should get a cut for distributing digital euros and ensuring their payment rails accept and profit from transactions with virtual banknotes at the cashier’s till. Privacy-minded governments, such as Germany and the Netherlands, want the highest safeguards against payment surveillance; while the Belgian government has made it clear that it will not support the digital euro if it can’t be used offline. Central bankers have long relied on lofty speeches and fireside chats to influence policymaking. But that hasn’t worked with the digital euro. And with Trump back in office, the ECB has been forced to climb down from its ivory tower and enter the political ring. All that presages a fierce political debate over the coming months — though the Parliament doesn’t plan to reach a final position until next May, meaning it’s unlikely you’ll be able to actually start buying things with digital euros until at least 2028.