According to a press release shared with Cointelegraph on Oct. 16, this development is part of a broader initiative, which sees the Bermuda government support “the use of USD-dollar backed stablecoins and decentralized finance protocols and services.”

Global financial services company Circle announced that Bermuda became the first government to accept its stablecoin USD Coin (USDC) for tax payments.

Part of a broader government initiative to embrace stablecoins

Circle co-founder and CEO Jeremy Allaire said:

“Bermuda’s Premier made a broader announcement today about embracing stablecoins as the future of the financial system, with a focus on innovations in fintech that can deliver value not just for Bermudians, but also globally via company’s licensed under their Digital Asset Business Act.”

Allaire also explained that Bermuda’s economy already relies on a United States dollar-backed currency, namely the Bermudian dollar. Because of this, he believes that “it’s natural that they would both embrace USD-backed stablecoins for their own government services.”

He also claims that this Bermuda’s initiative highlights that the world is on its path towards mainstream acceptance of stablecoins for everyday payments and commerce.

A comprehensive regulatory crypto framework

Circle also announced that the firm has been awarded a “Class F” license under Bermuda’s Digital Assets Business Act (DABA) of 2018. The company claims that this license makes the company the first major cryptocurrency exchange and wallet service ever to receive such a permit. Allaire commented:

“Through the DABA, Bermuda is one of the first countries in the world to create a comprehensive regulatory framework for digital currency and digital asset-based products and services, including licensing of firms operating payment systems using stablecoins. It will be interesting to see how other governments will respond to this fundamental innovation.”

USDC was launched about a year ago by Circle in partnership with major cryptocurrency exchange Coinbase. As Cointelegraph recently reported, Coinbase now allows holders of USDC to earn a 1.25% annual percentage yield.

Bank of England’s Stablecoin Ruling Targets Financial Stability, Exec Says

Financial stability was a key factor in the Bank of England’s decision to hold stablecoin payment systems to the same regulatory standards as existing payment chains.

That’s because stablecoins may seek to operate outside of the existing financial infrastructure – the one that card payments, online banking services and others inhabit. Those activities are regulated across authorization, clearance and settlement to keep the money moving and all parties assured.

Using a coffee shop transaction as an example, Segal-Knowles illustrated that stablecoins would have no such oversight.

“Stablecoins could mean that in future, when I tap my phone at a coffee shop, I may be able to pay with a token that provides a new payment method entirely – and which would not rely on either my bank or my credit and debit cards”, Segal-Knowles said.

The transaction therefore carries none of the assurances regulators offer for existing payment chains. As the FPC wrote in its December report:

“Poorly designed, operated or regulated payment chains pose risks not just to economic activity directly, but also indirectly via confidence in the financial system and the real economy.”

Two scones and a decaf today could compound into very real concerns tomorrow for a coffee shop trying to settle its books.

“If you’re used for payments you should be regulated to the same standard as other entities conducting payments activities”, she said. “It doesn’t matter what technology you are using. Same risk, same regulation.”

The FPC’s December ruling outlines that those and other standards must be enforced:

The second ruling speaks to a more consequential future. Emerging units of transfer (the stablecoin) must be tightly regulated and standardized, especially if they may become systemically important, like Libra, which was mentioned by name in the FPC report. Facebook’s proposed stablecoin and others could quickly become widespread, she said.

Segal-Knowles said these payment innovations are welcome in Britain – as long as the regulators have their say.

“To ensure that this period of innovation does not end in a leap backwards we need to be sure that regulation keeps pace”, she said.

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