Bank of England Governor Warns of Risks from Private Stablecoins

Bank of England (BOE) Governor Andrew Bailey has voiced significant concerns over the potential risks that private stablecoins pose to the financial system. In a recent interview, Bailey expressed a strong preference for tokenized bank deposits over private stablecoins, citing the systemic risks associated with the latter.

Bailey emphasized that stablecoins could potentially "take money out of the banking system" and disrupt the credit creation process. He advocated for a more integrated and regulated digital financial system, suggesting that banks should focus on digitizing their deposits rather than issuing their own stablecoins. "I would much rather [banks] go down the tokenized deposit streets and say, how do we digitize our money, particularly in payments," he noted.

Bailey's comments come at a time when the stablecoin market has seen substantial growth, expanding from $125 billion less than two years ago to around $255 billion today. This growth has raised concerns about the potential impact of stablecoins on financial stability and the need for regulatory oversight.

In addition to his concerns about stablecoins, Bailey also expressed his views on central bank digital currencies (CBDCs). He stated that the UK should not adopt a CBDC, also known as a ‘digital pound,’ and instead focus on digitizing deposits. This stance contrasts with the positions of the US and the European Central Bank, which are exploring the use of stablecoins and CBDCs, respectively.

Bailey's appointment as the new chairman of the Financial Stability Board (FSB) further underscores his role in shaping global financial regulations. His comments reflect a growing concern among regulators about the potential risks posed by private stablecoins and the need for a more integrated and regulated digital financial system.

Bailey also highlighted the extreme volatility of Bitcoin, describing it as an "unbacked asset" that does not function as money. He advised users to approach Bitcoin with caution, noting that it lacks the characteristics of a stable medium of exchange. This warning comes as regulators around the world grapple with the challenges posed by the rapid growth of cryptocurrencies and the need for effective regulation.