Bank of England Governor Warns Stablecoins Could Undermine Financial Stability

Bank of England Governor Andrew Bailey has expressed concerns about the potential risks posed by the growing use of stablecoins, warning that their widespread adoption could undermine monetary trust and the stability of the financial system. In a speech delivered at the Andrew Crockett Memorial Lecture, Bailey highlighted the evolving nature of reserve currencies, which now prioritize liquidity and safety over convertibility. He emphasized that the role of official reserves has shifted from backing currency convertibility to maintaining financial stability during times of stress.

Bailey cautioned that the introduction of private stablecoins could complicate the "singleness of money," a concept that ensures all forms of money in an economy are interchangeable and backed by a common framework. He urged central banks to reassess their roles in the face of payment innovation and cross-border liquidity risks, noting that unregulated stablecoins could lead to fragmented monetary systems and weaken policy tools.

The governor also raised concerns about the potential for stablecoins to circulate outside central oversight, which could complicate cross-border financial stability measures. He called for clarity in defining the role of reserve currencies in systems where new payment technologies may bypass traditional oversight. Bailey's remarks underscore the need for regulatory frameworks to ensure that stablecoins meet high standards for security, liquidity, and legal clarity before they can be integrated into official reserves.

Bailey's warnings come as central banks around the world are increasingly alert to the potential risks and opportunities presented by stablecoins. The Bank of England, along with other central banks, is closely monitoring the development of stablecoins and assessing their potential impact on monetary policy and financial stability. The governor's remarks highlight the need for coordinated efforts to ensure that stablecoins are regulated in a way that protects the integrity of the financial system and maintains public trust in money.