Bank of England Governor Andrew Bailey said Wednesday that any stablecoin achieving widespread payment use in Britain must operate under banking regulations, including depositor protections and access to central bank reserve facilities.
What to Know:
- Bailey's position marks a tonal shift from his previous cryptocurrency skepticism, though he questions whether current stablecoin usage qualifies as genuine money-like payment activity.
- The central bank plans to publish a consultation paper on stablecoins in coming months, proposing that widely used tokens receive access to BoE accounts to establish their monetary status.
- Cryptocurrency industry representatives have raised concerns about the BoE's regulatory approach, citing proposed restrictions on stablecoin holdings and criteria for determining which tokens fall under supervision.
Regulatory Framework Takes Shape
Bailey wrote in the Financial Times that dismissing stablecoins on principle would be misguided. However, he distinguished between their current primary function — facilitating entry and exit from cryptocurrency trades — and actual money-like payment systems.
The governor confirmed the BoE would release consultation documents on stablecoins within months.
"In doing so, we will set out that widely used UK stablecoins should have access to accounts at the BoE in order to reinforce their status as money," Bailey wrote.
He also suggested a potential financial landscape where banks and stablecoins operate alongside each other, with non-bank entities assuming greater credit provision responsibilities. Bailey acknowledged such structural changes would require thorough evaluation.
Market Context and Industry Response
Stablecoins are digital tokens engineered to maintain constant value, typically backed by traditional assets including U.S. dollars or government debt. Their popularity has grown substantially, with further expansion anticipated following passage of the U.S. GENIUS Act in July, which established federal stablecoin regulations.
Bailey told The Times in July that the technology posed risks to the banking system by potentially diverting money and weakening credit creation mechanisms. His Wednesday comments represent a somewhat less adversarial stance.
Cryptocurrency sector figures have voiced apprehension about the BoE's cautious regulatory posture.
Specific concerns include proposed caps on stablecoin holdings, the percentage of backing assets eligible for interest earnings, and the standards the BoE will apply when determining regulatory jurisdiction over specific stablecoins.
Bailey specified that stablecoins should maintain risk-free backing assets, benefit from insurance and resolution protections, and allow immediate cash conversion without depending on cryptocurrency exchanges.
Stablecoins function as digital representations of value designed to avoid the price volatility characteristic of Bitcoin and other cryptocurrencies. Issuers typically maintain reserves in traditional currencies or securities to support the tokens' stable value. The tokens serve as a bridge between conventional finance and cryptocurrency markets, though regulators worldwide continue examining their systemic implications.
The BoE's regulatory framework would treat widely adopted stablecoins similarly to bank deposits. This approach reflects concerns that inadequately regulated digital currencies could threaten financial stability if they achieve significant market penetration without appropriate safeguards.
Closing Thoughts
Bailey's announcement signals the BoE's intent to establish comprehensive stablecoin oversight while acknowledging these digital instruments' potential role in Britain's payment infrastructure. The forthcoming consultation will clarify specific regulatory requirements for stablecoin operators seeking to establish monetary equivalence.
