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01-06-2022|Crypto

No, the United Kingdom will not make the USDC and USDT legal tender.

Following the latest crypto meltdown, the UK government announced that stablecoins would be "legalised." Crypto enthusiasts on Twitter interpreted this to suggest that the two most popular reserved stablecoins, USDT and USDC, would become legal money in the United Kingdom.

Stablecoins, on the other hand, do not need to be legal tender to be accepted as payment. They don't even require "legalisation." It is absolutely legal for residents of the United Kingdom to utilise USDC, USDT, or any other stablecoin, including algorithmic stablecoins.

Stablecoins are currently solely used on cryptocurrency exchanges and not in conventional payment systems. It is not, however, required to make them legal tender in order for them to be accepted in mainstream transactions. The United Kingdom has a comprehensive, rapid, and low-cost e-payment system, with banks acting as gateways. This mechanism is used for the vast majority of payments in the United Kingdom. Many retail purchases can also be made using newer technologies like PayPal.

There is no use of legal money in any of these transactions. In the United Kingdom, debit cards, credit cards, bank transfers, checks, mobile money, and PayPal are not legal tender. Only banknotes and coins are legal tender in England, and low-denomination coins are only valid for up to 20 pence (US25 cents). Only coins are legal tender in Scotland.

Legal tender is not required of merchants. A 50 pound note is legal cash in England, but you'll be told to get on your bike if you try to pay for a bus ride with it. You can, however, pay with a non-legal tender contactless debit card.

As a result, legal money "has no purpose in ordinary life," according to the Bank of England. It exists just to serve a single function. Whether or not the creditor accepts it, legal tender discharges a debt. "If you offer to fully pay off a debt to someone in legal tender, they cannot sue you for failing to repay," the Bank of England adds.

Legal tender law dates from a time when debtors may be imprisoned if creditors didn't like the coin they presented as payment. The notorious Marshalsea Prison in London housed a large number of delinquent debtors, including those with money, in the nineteenth century. Amy Dorrit's father was a long-term resident of Marshalsea in Charles Dickens' novel "Little Dorrit" because his debts were so enormous and convoluted that no one could figure out how to pay them off.

We no longer send people to Marshalsea Prison for not paying their debts these days. However, promising to pay in legal cash can help you avoid a creditor's wrath. Both creditors and courts, on the other hand, would like to receive a bank transfer or a debit card payment. Legal tender is inconvenient.

You'd think that, with physical cash on the decline, policymakers would want to make other forms of payment legal tender, wouldn't you? However, because payments work just fine whether or not legal money is used, and the vast majority of debts are settled without it, there is no need to change the regulations.

To be used for mainstream payments, money does not have to be legal tender. All that is required is for it to be generally accepted. Making stablecoins legal tender may help to boost their credibility, but it's far more vital to regulate them so that they're seen as secure. The United Kingdom has a thorough regulatory system in place to ensure that electronic payments are secure. Including stablecoins in this regulatory framework would boost their wider use.

And it appears that the UK government aims to do just that. According to The Telegraph, "legislation to govern stablecoins where used as a means of payment" would be included in the Finance and Markets Bill, which was mentioned in the recent Queen's Speech.

As a result, "legalise" should be replaced with "regulate." Using regulated stablecoins for mainstream payments could help to loosen the banks' grip on the UK's payments system and increase financial inclusion. But which stablecoins would meet the criteria?

USDT and USDC, on the other hand, would not. Because the United Kingdom does not use the US dollar, it would make no sense for these stablecoins to be used for domestic payments. Stablecoins tied to the British pound are not currently issued by their issuers. Circle and Tether might issue GBP stablecoins if the United Kingdom officially pushed shops to accept them.

However, British banks are another category of financial entities that could produce regulated stablecoins for usage in the British market. They don't want to lose control of the payments marketplace, after all. Tether and Circle are both foreign firms in the United Kingdom. Tether is situated in Boston, Massachusetts, and Circle is based in Hong Kong, which is no longer a British territory. If UK regulators favoured Circle and Tether stablecoins above those issued by UK banks, there would be a lot of lobbying, not just from banks, but also from politicians and pundits who want to "keep payments British."

Another entity that might seek to create a regulated GBP stablecoin, and has been looking into it, is the Bank of England. The Bank of England is the institution in question. The House of Lords, the UK's upper legislative house, recently slammed the concept, calling it "a solution in search of a problem." However, if stablecoins are the way of the future, the central bank will undoubtedly want to participate.

As a result, the United Kingdom is not seeking to declare the USDC and USDT legal tender. It isn't even advocating that they be "legalised," because they are currently legal in the United Kingdom. It proposes that they be regulated. As a result, they may never be accepted in conventional payment systems in the United Kingdom.

It's a qualified welcome for new GBP-pegged stablecoins from trusted British issuers – and an invitation to U.K. banks and the Bank of England to get on with issuing them – rather than the open door to existing stablecoins that stablecoin enthusiasts expected.

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