Bank of England Governor Opposes Banks Issuing Stablecoins

Bank of England Governor Andrew Bailey has expressed his opposition to major banks issuing their own stablecoins. In a recent interview, Bailey advocated for banks to offer tokenized deposits instead, which are digital versions of conventional money. He argued that tokenized deposits keep money within the banking system, unlike stablecoins that could withdraw funds and reduce banks' lending capacity.

Bailey emphasized the need for strict regulations to prevent illegal activities such as money laundering, which he believes stablecoins could facilitate without proper oversight. He advocated for robust rules similar to those in conventional banking to ensure the security and reliability of stablecoins, as people often treat them as ordinary money.

Despite Bailey's caution, there are differing views within the Bank of England. Sasha Mills, the Executive Director of Financial Market Infrastructure, recently spoke at an event, indicating that the Bank remains open-minded about stablecoins. Mills highlighted that the Bank is exploring how this technology could be utilized, particularly in wholesale markets where large transactions occur between banks. She also mentioned the Bank's desire to keep central bank money as the primary settlement instrument in the financial system and is looking for ways to modernize it.

Meanwhile, several major banks, including JPMorgan, are moving forward with plans to develop their own stablecoins. JPMorgan, for instance, is creating a token called JPMD, which analysts believe could reduce the cost and speed of payments to large customers. This development contrasts with Bailey's preference for tokenized deposits, which he sees as a way to maintain the stability of the banking system by keeping money within banks.

The Bank of England has also been considering the possibility of issuing its own central bank digital currency (CBDC). However, Bailey indicated that he does not favor this option in the near future, suggesting a cautious approach to digital currencies. The controversy surrounding stablecoins and digital money has led to calls for a clear set of rules to ensure safety and prevent the undermining of the financial system. Bailey's warnings add to the global regulatory efforts to balance innovation with safety.

The debate on stablecoins is far from over. Central banks, governments, and financial institutions will continue to discuss how to strike a balance between innovation and safety. Bailey's advice to the public is clear: keep money in banks and be cautious about stablecoins. This stance reflects the ongoing efforts to modernize financial systems while ensuring stability and security.