Stablecoins Could Redefine the UK’s Financial System
Bank of England Governor Andrew Bailey suggested stablecoins could reduce the UK’s dependence on commercial banks, hinting at a major policy shift.
In his Financial Times article, Bailey explained that the current financial system relies on fractional reserve banking, where banks hold only a portion of deposits and lend the rest. He argued the system does not necessarily need to function this way.
Bailey said separating money from credit provision could allow stablecoins and banks to coexist while non-bank entities expand their role in lending.
Industry Pushback on Stablecoin Limits
Bailey’s remarks come after criticism of the BoE’s proposed caps on stablecoin holdings. UK crypto industry groups warned such limits could harm innovation and make the country less competitive compared to other jurisdictions.
Coinbase’s Tom Duff Gordon noted that “no other major jurisdiction has deemed it necessary to impose caps.”
Stablecoins and Central Bank Accounts
Bailey revealed that the Bank of England will release a consultation paper on systemic stablecoin regulation in the coming months.
He added that stablecoins widely used in the UK should have access to accounts at the BoE, reinforcing their legitimacy as money for everyday transactions and financial market settlements.
This marks a shift from Bailey’s July stance when he opposed banks issuing stablecoins and instead favored tokenized deposits.
Stablecoins Require Evolution
Despite his openness, Bailey emphasized that stablecoins must meet strict standards. They should be backed by risk-free assets, insured against operational risks such as hacks, and have standardized exchange terms.
Bailey concluded that innovation in money should not be opposed, noting that stablecoins could play a significant role in transforming payment systems.
