Bank of England Governor Andrew Bailey has issued a stark warning against private stablecoin issuance, positioning himself at the center of a growing transatlantic divide over digital currency policy.
In a recent interview with The Sunday Times, Bailey expressed serious concerns about the systemic risks that bank-issued stablecoins could pose to global financial stability, advocating instead for tokenized deposits as a safer alternative to digitize traditional banking.
Bailey’s remarks comes as the stablecoin market has experienced explosive growth, expanding from $125 billion to approximately $255 billion in less than two years according to the latest Bank for International Settlements report.
This rapid expansion has caught the attention of regulators and policymakers worldwide, with South Korean officials also voicing concerns about the potential displacement of sovereign currencies and the erosion of traditional monetary policy tools.
Bailey’s appointment as chairman of the Financial Stability Board, the international regulatory body established after the 2008 financial crisis, suggests his concerns will carry significant weight in global policy discussions.
Tokenized Deposits As Alternative
Rather than embracing private stablecoins or central bank digital currencies (CBDCs), Bailey advocated for tokenized deposits as the optimal path forward for digitizing money. This approach would allow banks to leverage blockchain technology while maintaining existing regulatory frameworks and monetary policy mechanisms.
“I would much rather [banks] go down the tokenized deposit streets and say, how do we digitize our money, particularly in payments,” Bailey explained, emphasizing that this method would preserve the integrity of the traditional banking system while enabling technological innovation.
Bailey also dismissed the potential for a UK CBDC, describing it as unnecessary when tokenized deposits could achieve similar objectives without the risks associated with central bank-issued digital currencies. This position contrasts sharply with the European Central Bank’s pursuit of a digital euro and highlights the divergent approaches emerging among major central banks.
Global Regulatory Tensions
The timing of Bailey’s comments is particularly significant as the US House of Representatives prepares for “Crypto Week,” during which lawmakers will debate landmark stablecoin legislation including the GENIUS Act. This bill would facilitate rather than restrict the ability of companies and banks to issue stablecoins, representing a direct contradiction to Bailey’s preferred approach.
Treasury Secretary Scott Bessent has argued that stablecoins would strengthen US dollar dominance by creating new demand for dollar-denominated assets and Treasury bills. This perspective views stablecoins as a strategic tool for maintaining American financial hegemony in an increasingly digital global economy.
However, European officials have repeatedly warned that dollar-denominated stablecoins pose existential threats to the EU financial system and could potentially displace the euro altogether. Bailey’s latest comments reinforce these concerns and suggest that transatlantic coordination on digital currency policy may prove challenging.
As global regulators navigate these competing visions for the future of digital finance, Bailey’s influence through the Financial Stability Board ensures that concerns about systemic risk will remain at the forefront of international policy discussions.
