‘If stablecoins take money…’ Does BoE Governor’s prediction hold weight?

Key Takeaways

The Bank of England favors tokenized deposits over stablecoins to preserve lending and reduce risk. Bailey warns of crime, instability, and questions the need for a digital pound in today’s system.

Big banks eyeing their own stablecoins are facing fresh pushback from the Bank of England.

BoE Governor Andrew Bailey has warned that letting lenders issue private digital currencies could undermine financial stability.

He added that the UK is leaning toward more secure alternatives like tokenized bank deposits.

Tokenized deposits vs. stablecoins

Bailey made clear that the Bank of England’s preference lies with tokenized bank deposits — digital representations of money already held in accounts — rather than privately issued stablecoins.

This approach, he said, helps maintain monetary control and credit creation while reducing systemic risks.

Bailey warned in a recent interview,

“If stablecoins take money out of the banking system, banks have less capacity to lend.”

Unlike stablecoins, which operate outside traditional banking channels, tokenized deposits function within the regulated system, making them more compatible with the BoE’s financial architecture.

A global divide on digital currencies — stablecoins

The UK’s reserved stance contrasts sharply with the United States’ more aggressive push toward regulated stablecoins. Under President Trump, stablecoin adoption has become a pillar of America’s crypto policy.

The GENIUS Act has paved the way for assets like USD1, a dollar-backed Trump-affiliated stablecoin already boasting a $2.2 billion market cap.

By comparison, the UK aims to modernize finance without disrupting its foundational structures, preferring a model that integrates digital finance into existing monetary infrastructure rather than bypassing it.

Europe is also watching the trend with caution.

Economic Governance and EMU Scrutiny Unit (EGOV) said recently,

“As a result of this growing concern with US stablecoins, the ECB has once again underscored the need for the digital euro as a possible counterweight…”

Crime and stability concerns rise

Bailey, who also chairs the Financial Stability Board, expanded his concerns to include financial crime.

He argued that stablecoins could enable criminal activity, citing the potential for “vast sums potentially moving through private stablecoin networks outside regulated channels.”

The lack of safeguards could fuel money laundering and destabilize the financial system during periods of market stress.

His warning evokes memories of high-profile collapses like FTX and reminds us of the risks of a digital-era bank run.

Is a digital pound still needed?

Bailey also cast doubt on the need for a central bank digital currency. Instead of rushing toward a digital pound, he suggested enhancing the existing banking infrastructure.

Calling it a “sensible” approach, Bailey emphasized the benefits of focusing on digitizing commercial bank deposits, preserving banks’ roles as credit intermediaries while updating payment and settlement rails.