Discourse surrounding crypto assets and digital currencies are heating up, and the latest to air its view is the UK's Bank of England.

In a discussion paper published on June 7, the Bank of England (BoE) gave its two cents about what it termed new forms of digital money, covering both private and public versions.

Making a case for these digital versions of payment settlements, the BoE noted in the document posted on its website, that these new forms of money could enable a faster, cheaper, and more efficient payments system. They could also help to foster better financial inclusion for the vast majority of the unbanked.

But despite the potential benefits they bring, they carry risks with their use.

Following the prospects of these digital forms of money coming with risks, the BoE governor Andrew Bailey has called for regulation for private forms of digital money. According to a report by Reuters, Bailey said private digital currencies like stablecoins would have to undergo the same regulatory oversight payments by banks are handled if there is any prospect of them enjoying widespread use.

Casting more doubt on the Brexit nation's plans for a state-backed digital pound, Bailey said that the bank has not yet decided if it will proceed with a central bank digital currency design.

Adding further, “it is essential that we ask the difficult and pertinent questions when it comes to the future of these new forms of digital money.”

The difficult and pertinent questions have seen the BoE paper consider stablecoins – digital assets meant to track real-life currency movement in real-time – and its implication on the economy. According to the BoE paper, it is not easy to gauge the potential impact of these private digital currencies, given that they are not widely used as their fiat counterpart.

However, it pointed out that several reasons could see stablecoins preferred to bank payments given their relative ease. Following this analysis, the BoE pointed out that stablecoin issuers would be subjected to capital requirements, liquidity requirements, and a backstop to compensate depositors in the event of failure to fulfill their payment obligations.

The BoE paper argues that a potential digital pound must ensure the broadest range of financial inclusion for users while protecting their privacy.

It is also looking into aspects like CBDCs becoming a store of value and, in that event, considering whether digital pounds should yield interests for its users. To further its goal of a CBDC adoption, the BoE said zero or negative interest rate could help incentivize the use of CBDCs for payments as it seeks wide adoption.

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