Bank of England governor calls stablecoins threat to financial stability
Bank of England warns banks: steer clear of stablecoins
Bank of England Governor Andrew Bailey has issued a stark warning to banks about the systemic risks posed by stablecoins, urging institutions to avoid issuing them altogether.
Speaking in an interview with The Sunday Times, Bailey emphasized that stablecoins—if not properly regulated—could undermine monetary control and remove money from the traditional banking system, threatening the stability of national economies, reports Crypto News.
“Stablecoins are proposed to have the characteristics of money. That money is a medium of exchange,” Bailey said. “They really do have to have the characteristics of money, and they have to maintain their nominal value. We are going to have to look at it very closely through that lens.”
Concerns Over Financial Sovereignty and Crypto Integration
Bailey, a longtime crypto skeptic and current Chair of the Financial Stability Board, warned that unregulated stablecoins could blur the line between traditional finance and the crypto ecosystem. The Bank of England is particularly worried that large-scale issuance of private stablecoins—especially by major investment banks—could erode sovereign control over national currencies.
He cautioned that these digital assets lack the safety nets and guarantees associated with regulated bank deposits. As a result, widespread stablecoin use could impact credit creation, damage the central bank’s ability to steer monetary policy, and introduce dangerous dependencies between crypto markets and the traditional financial system.
Bailey Promotes Tokenized Deposits as Safer Alternative
Instead of embracing stablecoins, Bailey recommended that banks focus on tokenized deposits—digital representations of bank-issued money that maintain regulatory oversight and offer consumer protection. He described this model as a more “sensible” way forward for modernizing the financial system without sacrificing its core stability.
Bailey’s remarks arrive at a time when the global stablecoin market has swelled to $255 billion, according to the Bank for International Settlements. Leading banks like JPMorgan, Citi, and Bank of America are exploring their own stablecoin initiatives, raising alarms among central bankers and policymakers. In contrast, Bailey has also expressed skepticism toward a Bank of England-issued central bank digital currency (CBDC), further highlighting his preference for private sector innovation under existing regulatory frameworks.
Global Debate Intensifies Over Stablecoin Regulation
As dollar-backed stablecoins dominate the sector, global regulators are ramping up efforts to manage their growth. In the United States, lawmakers are preparing to pass the Genius Act, which would allow commercial banks to issue stablecoins under a regulated structure. Meanwhile, countries such as China, Singapore, and the UAE have begun introducing advanced rules to address the financial and geopolitical risks associated with the rising influence of stablecoins.
While U.S. officials argue that dollar-backed stablecoins could extend the global dominance of the U.S. dollar, critics like Bailey remain unconvinced, advocating for regulatory caution and systemic safeguards to protect the foundations of the global financial system.
Recently we wrote that Bank of Korea (BOK) Governor Lee Chang-yong has issued a sharp warning about the dangers of allowing non-bank institutions to issue won-denominated stablecoins, arguing it could create unprecedented confusion within South Korea’s financial system.
