Stablecoins threaten financial stability, says Bank of England governor Andrew Bailey

Bank of England governor and cryptocurrency skeptic Andrew Bailey has advised banks to avoid issuing stablecoins.

According to Bailey, stablecoins pose systemic risks to financial stability and threaten the very nature of money if not properly regulated.

He warned that stablecoins lack the protections and guarantees offered by traditional bank deposits and could remove money from the regulated banking system, undermining credit creation and monetary control.

Plans by some of the world’s largest investment banks to issue their own stablecoins have raised particular concern for Bailey, as he shared during an interview with The Sunday Times.

“Stablecoins are proposed to have the characteristics of money. That money is a medium of exchange. Therefore, they really do have to have the characteristics of money, and they have to maintain their nominal value. We are going to have to look at it very closely through that lens. It’s both a financial stability issue and a money issue in that sense,” he was quoted as saying.

Bailey, who is also serving as chair of the Financial Stability Board, warned that stablecoins could erode sovereign control over national currencies and introduce unregulated ties between crypto markets and the traditional financial system.

Instead of supporting stablecoins, Bailey, who has also spoken against the issuance of a BoE CBDC, said he “would much rather” banks pursue tokenized deposits, which are digital versions of traditional money issued by regulated institutions.

This approach, he added, would help preserve the integrity of the banking system while delivering the benefits of digital payments, making it a more “sensible” path forward.

Globally, the stablecoin market has grown to around $255 billion, according to the Bank for International Settlements. 

Banks such as JPMorgan, Citi, and Bank of America are exploring stablecoin issuance, while US officials argue that dollar-backed stablecoins could help extend the global dominance of the US dollar.

With dollar-backed stablecoins dominating the sector, regulators around the world have begun introducing new policies and proposals to manage their growth and address potential risks.

As such, stablecoins have become a key policy focus in several jurisdictions. In the United States, lawmakers are expected to approve the Genius Act, which would allow commercial banks to issue stablecoins under a formal regulatory framework. At the same time, countries like China, Singapore, and the UAE have advanced regulations in response to the growing influence of dollar-backed stablecoins.