Bank of England Governor Says Stablecoins Pose Threat to Financial Stability

Andrew Bailey, the Governor of the Bank of England, has issued a sharp warning against the potential dangers of stablecoins. He cautioned people about how stablecoins pose a direct threat to global financial system stability, as well as undermine the role of traditional money if not firmly regulated. Bailey appeared for an interview with The Sunday Times, during which he emphasized that stablecoins do not offer the same protection as conventional bank deposits.

This absence of safeguards could draw funds from the regulated banking sector. This can ultimately disrupt credit creation and weaken central banks’ control over monetary policy.

Governor of the Bank of England Warns Against Stablecoins

Andrew Bailey further warned against the pitfalls of stablecoins. He said, “Stablecoins are proposed to have the characteristics of money. That money is a medium of exchange. Therefore, 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.”

Bailey, who also chairs the global Financial Stability Board, expressed deep concern over major investment banks, such as JPMorgan, Citi, and Bank of America, considering issuing their own stablecoins. He warned that these kinds of moves could make it hard to tell the difference between regulated finance and the unstable realm of crypto assets, which could make the system weaker.

The Bank for International Settlements says that the worldwide stablecoin market has already grown to $255 billion, mostly because people want coins backed by the dollar. Supporters say that these assets can speed up and lower the cost of cross-border transactions and help the U.S. currency stay on top of the world. But Bailey and other regulators are still not sure, pointing out the dangers of giving up control over money and letting the banking system break up.

Bailey didn't favor stablecoins; instead, he suggested a different strategy, such tokenized deposits. These are digital forms of traditional bank money issued by regulated institutions. He argued that tokenized deposits would maintain the trust and safeguards of traditional banking while delivering the efficiency benefits of digital payments.

“I would much rather see banks focus on tokenized deposits. It’s a more sensible and stable path forward,” Bailey remarked.

Bailey's comments come at a time of intensified global regulatory focus on stablecoins. In the U.S., lawmakers are expected to pass the Genius Act, which would authorize commercial banks to issue stablecoins under formal oversight. Meanwhile, countries like China, Singapore, and the UAE have already enacted advanced frameworks to address the growing influence of these digital assets. As governments and financial institutions grapple with the rapid evolution of money, Bailey's remarks underscore a critical challenge: balancing innovation with the preservation of monetary sovereignty and financial stability. Whether through tokenized bank money or tighter stablecoin regulation, the debate over the future of digital finance is only just beginning.