The Governor of the Bank of England strongly opposes banks issuing stablecoins, expressing concerns about financial stability risks.
Andrew Bailey, Governor of the Bank of England (BoE), recently issued a strong warning during an interview with (The Times), urging the world's largest banks to avoid issuing their own stablecoins, viewing such crypto assets as threats to financial stability and the nature of money.
Bailey stated that stablecoins would pose systemic risks to banking institutions, potentially undermining the stability of the entire financial system and leading to sovereign governments losing control over their currencies.
Bailey pointed out that if stablecoins withdraw funds from the banking system, banks' lending capacity would decrease, thereby affecting the core functions of the modern banking industry. He warned that large-scale adoption of stablecoins by financial institutions could lead to disintermediation, liquidity imbalances, and increase the risk of sudden withdrawals during market pressure, similar to the bank run situation that occurred during the FTX collapse.
As the newly appointed chair of the Financial Stability Board (FSB), Bailey believes that large sums of money could flow through private stablecoin networks outside regulatory channels, increasing the risk of money laundering and other criminal activities, and lacking sufficient oversight or safeguards.
Advocating for tokenized deposits as an alternative, opposing the issuance of central bank digital currency.
In contrast to stablecoins, Bailey clearly supports the development of tokenized deposits by banks, which are digital versions of traditional currencies. He stated in an interview: 'I prefer banks to pursue the path of tokenized deposits, exploring how to digitize our currency, especially in the payment industry.' This model is believed to be more compatible with the existing banking system and less disruptive to the transmission of monetary policy.
Bailey's preferences reflect the Bank of England's desire to modernize payment and settlement infrastructure while maintaining banks as credit intermediaries. At the same time, Bailey expressed skepticism about the prospect of the U.K. issuing a central bank digital currency (CBDC), suggesting that issuing a digital pound may not be necessary and that focusing on digitizing commercial bank deposits is a 'wise' choice.
Additionally, Bailey issued a warning to Bitcoin investors, emphasizing that 'Bitcoin is not money, it has no monetary function, so if you are going to buy it, please be cautious.'
The divergence between U.S. and U.K. policies is evident, and the EU has also expressed concerns about dollar stablecoins.
Bailey's stance sharply contrasts with the policies of the Trump administration in the United States. The Trump administration prioritized establishing a comprehensive regulatory framework for stablecoins, with U.S. Treasury Secretary Scott Bessent stating that stablecoins would expand the dominance of the dollar and ensure its status as a global reserve currency. The U.S. Congress is currently preparing to debate the (GENIUS Act) that promotes rather than restricts the ability of companies and banks to issue stablecoins.
However, European officials share a similar stance with the Bank of England, repeatedly warning about the U.S. stablecoin plans. European Central Bank officials warned that dollar-denominated stablecoins pose a threat to the EU financial system and could completely replace the euro. The European Governance and Economic and Monetary Union Review Group (EGOV) recently emphasized the need for a digital euro as a potential counterbalance due to growing concerns over U.S. stablecoins.
Bailey summarized the current global trends in an interview: 'The U.S. is moving towards stablecoin development, the European Central Bank is moving towards central bank digital currency development, but neither is progressing towards tokenized deposits.' This divergence reflects fundamental differences among countries regarding the future development path of digital currencies.
This content is generated by Crypto Agent summarizing information from various sources and reviewed by (Crypto City). It is still in the training phase, and there may be logical biases or information inaccuracies. The content is for reference only and should not be considered as investment advice.
『Warning banks against issuing stablecoins! Bank of England Governor: Why I prefer the development of tokenized deposits』 This article was first published in 'Crypto City'
