Bank of England (BOE) governor Andrew Bailey recently warned against banks issuing stablecoins, saying that the Bank of England should focus on tokenizing deposits instead.
Stablecoins introduce systemic risks to banking institutions that could destabilize the entire financial system, causing sovereign governments to lose control over their currencies, the BOE official told The Sunday Times in an interview.Â
He also added that the United Kingdom’s central bank should not adopt a central bank digital currency (CBDC) or otherwise seek to launch a centrally-managed digital fiat token.
Bailey is the new chairman of the Financial Stability Board (FSB), an international financial regulator, suggesting that he will clamp down on the proliferation of stablecoins during his time at the helm.
Stablecoins are one of the biggest sectors in crypto and can help to increase the geographic salability of fiat currencies by bringing payment rails onchain, obviating the need for robust banking infrastructure to transmit funds across borders, thereby democratizing access to major currencies such as the US dollar, euro, and Japanese yen
Related: Shanghai officials warm to stablecoins despite China crypto ban: Report
United States goes all-in on stablecoins under the Trump administration
The Trump administration has repeatedly said that establishing comprehensive stablecoin regulations in the United States is a top priority.
Speaking at the White House Digital Asset Summit in March, US Treasury Secretary Scott Bessent said that stablecoins would extend US dollar dominance, ensuring that the dollar remains the global reserve currency.
Overcollateralized stablecoin issuers back their digital fiat tokens with cash held in banking institutions or short-term US Treasury bills, which are highly liquid.
By allowing private companies to tokenize US debt instruments, the administration can relieve some of the inflationary pressure on the dollar by spreading demand for US debt instruments to anyone with a cellphone and a crypto wallet.
Federal Reserve Chair Jerome Powell has also voiced support for the idea and called for cohesive stablecoin policies in the United States.
However, European counterparts have repeatedly sounded the alarm on the United States’ stablecoin plans, warning that dollar-denominated stablecoins pose a threat to the EU financial system and could displace the euro altogether.
Magazine: Unstablecoins: Depegging, bank runs, and other risks loom
