Bank of England on a Collision Course With the US: Banks Should Not Issue Stablecoins

Andrew Bailey, Governor of the Bank of England, warned about the dangers of banks issuing stablecoins, stating that they would remove money from the banking system. His stance contrasts with that of the Trump administration, which views stablecoins as a tool to extend dollar hegemony.

Bank of England Governor Warns About Banks Issuing Stablecoins

Stablecoins are once again in the spotlight, as they are increasingly used as a proxy to their fiat counterparts. Andrew Bailey, Governor of the Bank of England, has recently warned about the dangers of the rising adoption of stablecoins and the possible issuance of these by private banks.

In an interview with The Times, Bailey stated that he would rather support the tokenized deposits, a middle road that sees actual fiat money represented on a blockchain but backed by deposits held in private banks, than stablecoins.

He stressed:

I would much rather go down the tokenised deposit streets and say, how do we digitise our money, particularly in payments.

Furthermore, he stated that stablecoins presented “both a financial stability issue and a money issue,” given that they “have to have the characteristics of money and they have to maintain their nominal value.”

Bailey took a critical stance on stablecoins, highlighting that they posed a threat to the banking system, as they withdraw liquidity from the banking world and could affect the credit creation system in the future.

The position of the Bank of England puts it on a collision course with the U.S government, which has embraced stablecoins as a way of “promoting and protecting the sovereignty of the United States dollar” at an international level in an executive order issued in January.

Bailey’s statements seem to echo the same concerns as European Central Bank (ECB) President Christine Lagarde, who also warned stablecoins might lead to the privatization of money, depriving it of its “public good” function.

“I would say that the US is going towards stablecoins. The European Central Bank is going towards central bank digital currency. Neither of them is going towards tokenising deposits,” he concluded.

Read more: ECB President Christine Lagarde Warns Stablecoin Adoption Might Lead to ‘Privatization of Money’