Bank of England Governor Andrew Bailey suggested that stablecoins could thrive in a financial system that separates money from credit, potentially reducing the UK’s dependence on commercial banks. The remarks indicate a possible shift in the central bank’s approach to digital assets.
In a Financial Times article on Wednesday, Bailey noted that the current financial system combines money creation with credit through fractional reserve banking, where banks hold only a portion of deposits in reserve while lending out the remainder. Most of the assets backing commercial bank money are not risk-free: they are loans to individuals and to companies. Bailey emphasized that the system could be organized differently, with money and credit provision partially separated.
Stablecoins and non-bank credit provision
Bailey explained that in a system separating money from credit, banks and stablecoins could coexist, while non-banks take on a larger role in providing credit. He cautioned, however, that any such structural change should be carefully considered before implementation.
The comments follow criticism from UK-based crypto industry groups regarding the Bank of England’s previous plan to impose individual caps on stablecoin holdings. Industry representatives argued that caps would be costly, difficult to implement, and could leave the UK behind other jurisdictions. Tom Duff Gordon, vice-president of international policy at Coinbase, noted that “no other major jurisdiction has deemed it necessary to impose caps.”
Central bank accounts for widely used stablecoins
Bailey stated that the BoE will publish a consultation paper in the coming months outlining a UK stablecoin regime for systemic use. The framework would cover stablecoins intended for everyday payments or for settling tokenized core financial markets. He suggested that widely adopted UK stablecoins should have access to Bank of England accounts to strengthen their status as money, effectively enabling a form of tokenized central bank deposits.
Stablecoins require risk management and standardization
While expressing openness to stablecoins, Bailey stressed that they must hold risk-free assets and have safeguards against operational risks such as hacks. He also highlighted the need for standardized terms of exchange and insurance mechanisms. It should also be possible to have innovation in the form of money, noting that stablecoins have the potential to drive innovation in payment systems.