The UK: the world’s oldest stablecoin issuer??

The term 'stablecoin' has received some deserved criticism. Some, such as Terra Luna, have proven to be anything but stable. Others have fluctuated from par in the secondary market, ironically caused by issues with the banks storing the reserves in some cases. There have also been articles arguing that commercial banks, as the issuers of commercial bank money, are a form of stablecoin issuer. This article aims to highlight some historical examples that may not seem obvious as fulfilling the definition of stablecoins. The objective, hopefully, is to demonstrate that stablecoins are not a significant innovation and, as such, there are existing frameworks that can be used to inform how they should be regulated and treated today.???

It is alleged that BitUSD, which was released in July 2014, is the world’s oldest stablecoin. It was issued as a token on the BitShares blockchain and still seems to have survived to the present day, with a market capitalisation of over USD 1m, albeit a price of USD 0.82, having lost parity in 2018. However, BitUSD was not backed by USD but rather the BitShares core token, BTS.??

The term stablecoin has become entwined with the perception that it has to be internet and or blockchain based. However, one could convincingly argue that M-Pesa, Safaricom’s mobile money, fulfils many of the qualities of a stablecoin. It is backed by fiat assets held in regulated institutions, it is pegged one-to-one with the local legal tender, and it exists outside of the usual payment systems. In M-Pesa’s case it uses mobile phone networks rather than the internet and can even operate via very simple Unstructured Supplementary Service Data or USSD.??

If we lose the precondition that it must be internet or blockchain-based, then there is an argument to be made that the UK is one of the world’s oldest stablecoin issuers. This comes at a time when the UK has made clear its desire to be a major hub for digital assets more generally, most clearly with the recent passing of the Financial Services & Markets Bill, which includes provisions on how to regulate stablecoins.??

The Falkland Islands??

The Falklands Islands, South Georgia and the South Sandwich Islands have their own currency, which is The Falklands Islands pound. Under the 1987 Currency Ordinance the three Commissioners of Currency have the right to issue currency notes and coins. These must be backed by bank deposits, capped at 10%, or UK government securities or stocks issued by British local government authorities. MiCA, the new EU crypto regulation, mandates that stablecoin issuers maintain 30% of their reserves in cash, with the remainder being invested in similarly high-quality liquid assets. The Falklands Islands, it seems, was able to come up with an almost identical set of rules, only 35 years earlier.??

Northern Irish and Scottish banknotes??

Banknote issuance in Scotland and Northern Ireland (roughly seven million people and six million sheep between them) has been regulated since the 1840s. In each country there are three banks that can issue their own banknotes. In Northern Ireland it is the Bank of Ireland (not to be confused with the Central Bank of Ireland), Ulster Bank and, strangely, Danske Bank (this has nothing to do with the Vikings but rather their 2012 acquisition of Northern Bank). In Scotland it is Royal Bank of Scotland, Bank of Scotland and Clydesdale Bank. These six banks are required by law to set aside assets that are worth at least the value of all of the banknotes they have in circulation. The assets are Bank of England banknotes, coins and cash reserves at the Bank of England. This has all the hallmarks of a stablecoin.??

These bank notes have another quality in common with stablecoins, beyond both being bearer assets, insofar as they are not legal tender in the UK (including in Northern Ireland or Scotland). They are, in fact, promissory notes and, as anyone who tries to spend them in a London black cab will tell you, are often not accepted as a means of payment, one of the qualities of money. To engender trust, stablecoin issuers publish audits or in some cases attestations of their reserves. These are usually performed by an accountancy firm or professional auditing company. Scottish and Northern Irish bank notes are no different, with the audits being conducted by His Majesty’s Revenue and Customs and being published in the London and Belfast Gazettes respectively.??

Where is Manx??

Finally, is the Manx pound, which is used in the Isle of Man, a UK Crown Dependency in the Irish Sea. It is also the home of poundtoken.io , which is a GBP stablecoin issuer that Zodia Markets is making available on its platform. The Manx pound is not required by HM Government to be backed by UK currency, unlike in the Falklands, Scotland or Northern Ireland. However, under the Island’s 1992 Currency Act the Island’s Treasury is required to exchange Manx pounds on demand for UK currency. Also, the total note issuance must be approved by the Island’s legislature, Tynwald.???

As we can see, the UK has a long history as a stablecoin issuer. Despite one set being internet-based and the others being paper based, the requirements around reserve management, auditing and transparency are very similar to the ‘innovative’ stablecoin regulations we see today. Zodia Markets is working with the Stablecoin Standard and other partners to help launch a stablecoin market that can provide a complement to the existing foreign exchange market, as well as cross border payments. This represents a concrete use case for digital assets that will finally see payments and finance arrive on the internet.?

Interested in partnership opportunities with Zodia Markets? Connect with Nick Philpott , Co-Founder and Head of Partnerships at Zodia Markets, and follow Zodia Markets to stay updated with the latest stablecoin news.