Bank of England Governor Warns Banks Against Issuing Stablecoins

Bank of England Governor Andrew Bailey has issued a warning to the world’s largest banks, advising them against issuing their own stablecoins. Bailey expressed concerns that the increased use of these digital fiat-pegged assets could pose a risk to the stability of the financial system. He highlighted that stablecoins could affect the liquidity injection into traditional banking systems and potentially create an unregulated financial system. Bailey emphasized that stablecoins are still in their early stages and lack clear regulatory oversight, making them a threat to financial stability.

In an interview with British media, Bailey suggested that banks should instead focus on tokenized deposits, which are digital representations of traditional money. He argued that this approach would be more sensible and better integrated with existing banking systems. Bailey, who also chairs the Financial Stability Board, cautioned investors about the risks associated with buying Bitcoin, stating that it is not a form of money and does not serve the functions of money. He advised potential investors to fully understand the risks before making any decisions.

Bailey’s statements come as the U.S. and EU are taking diverging paths in their approach to cryptocurrencies. The U.S. House of Representatives is set to discuss regulations for stablecoins, including a version of the GENIUS Act, which provides a framework for top firms to issue stablecoins. Additionally, the House may consider a measure prohibiting the Federal Reserve from issuing a central bank digital currency (CBDC). However, Bailey noted that neither the U.S. nor the EU is considering tokenized deposits as an alternative.

Bailey’s concerns about stablecoins are shared by other high-ranking banking personalities. of the European Central Bank Christine Lagarde has also cautioned against the adoption of stablecoins, stating that they undermine monetary policies and threaten national sovereignty. There are also concerns about the lack of clear regulation for these assets, with worries that malicious actors could exploit this lack of oversight for money laundering. Bailey supports the idea of a more standardized framework for stablecoins, suggesting that they should be safe and reliable since people use them as regular money.

Despite the regulatory concerns, stablecoins have shown strong growth globally. The total stablecoin market capitalization is $258.533 billion, with a 2.71% increase in the past 30 days. Ethereum stablecoin senders reached a new all-time high in June, with over 750,000 unique weekly users. This growth includes major stablecoins such as USDT, USDC, BUSD, and DAI, demonstrating increased institutional attention and user adoption. The recent growth suggests a shift towards real utility-based adoption of these assets.