Stablecoins pose financial stability risks, warns bank of England governor

Bank of England Governor Andrew Bailey has issued a strong warning against the unchecked growth of stablecoins, stating they pose systemic risks to financial stability and could threaten the very nature of money if not properly regulated.

In an interview with The Sunday Times, Bailey expressed concerns that stablecoins lack the protections provided by traditional bank deposits and could drain funds from the regulated banking sector. This, he said, would undermine both credit creation and monetary control.

Stablecoins are proposed to have the characteristics of money. That money is a medium of exchange,” Bailey stated. “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.

Concerns grow as banks explore stablecoin issuance

Bailey, who also serves as chair of the Financial Stability Board, emphasized that stablecoins could erode sovereign control over national currencies and introduce unregulated links between the crypto ecosystem and traditional financial markets.

His comments follow recent developments involving global banking giants. Institutions like JPMorgan, Citi, and Bank of America have signaled intentions to issue their own stablecoins, heightening regulatory scrutiny.

Bailey made clear that he does not support this direction. Instead, he favors tokenized deposits digital versions of traditional money issued by regulated banks as a more “sensible” alternative.

He argued that tokenized deposits could offer the benefits of digital payments without compromising financial system integrity.

Global stablecoin growth sparks regulatory action

The global stablecoin market has surged to approximately $255 billion, according to data from the Bank for International Settlements. With dollar-backed stablecoins dominating the sector, regulators worldwide have accelerated efforts to manage their growth and address systemic risks.

In the United States, lawmakers are expected to advance the Genius Act, which would establish a regulatory framework allowing commercial banks to issue stablecoins. Meanwhile, countries such as China, Singapore, and the UAE have introduced advanced stablecoin regulations in response to their expanding influence.

While some U.S. officials argue that dollar-backed stablecoins could help extend the global reach of the U.S. dollar, Bailey’s warning adds to growing debate about their long-term implications for the global financial system.