Rishi Sunak to legalise 'stablecoins' despite cryptocurrency crash

More than $300bn has been knocked off the total value of all cryptocurrencies

The Treasury is pressing ahead with plans to legalise cryptocurrencies known as “stablecoins” as a form of payment in Britain, despite a market meltdown this week.

The department said it would include plans to regulate stablecoins as a payment mechanism in financial legislation announced in the Queen’s Speech.

It comes despite the collapse of Terra, one of the best known stablecoins, earlier this week.

Cryptocurrency markets fell into chaos when Terra, whose value is supposed to be guaranteed at one dollar, lost more than 85pc of its value and led to a hasty sell-off in other cryptocurrencies.

More than $300bn has been knocked off the total value of all cryptocurrencies in the last week with the market falling to a low not seen in over a year.

Last month, John Glen, the economic secretary to the Treasury, announced that the Government would introduce “a world-leading regulatory regime for stablecoins”.

Rishi Sunak, the Chancellor, has said it will “ensure the UK financial services industry is always at the forefront of technology and innovation”.

While the Treasury does not plan to include so-called “algorithmic stablecoins” such as Terra in the legislation, saying they do not guarantee stability, the price of other supposedly more secure coins backed by reserves also wavered this week.

“Legislation to regulate stablecoins, where used as a means of payment, will be part of the Financial Services and Markets Bill which was announced in the Queen’s Speech,” a Treasury spokesman said.

“This will create the conditions for issuers and service providers to operate and grow in the UK, whilst ensuring financial stability and high regulatory standards so that these new technologies can be used reliably and safely.

“The Government has been clear that certain stablecoins are not suitable for payment purposes as they share characteristics with unbacked crypto assets. We will continue to monitor the wider crypto asset market and stand ready to take further regulatory action if required.”

Unlike many stablecoins, which are backed by currency reserves and other investments, Terra’s value was tied to a separate cryptocurrency known as Luna, with software used to maintain its price. Its price slumped last week when confidence in the system collapsed.

Supporters of stablecoins believe that they will make payments more efficient and secure, while cutting down on fees such as for cross-border transactions.