Bank of England Governor Andrew Bailey has issued a warning to banks considering the issuance of stablecoins, fearing they could threaten financial stability.
Risks of Issuing Stablecoins
Andrew Bailey stated that without robust regulation, stablecoins could undermine the traditional banking structure. He emphasized that stablecoins do not provide the same level of protection for users as conventional bank deposits, potentially leading to a shift of funds away from the regulated sector and weakening credit creation.
Andrew Bailey's Position
During a public appearance, Bailey described the development of stablecoins as 'particularly concerning.' He stated that stablecoins must maintain the characteristics of money and their nominal value, mentioning that 'this is both a financial stability issue and a money issue.'
Alternatives to Stablecoins
As an alternative, Bailey advocated for tokenized deposits, which are digital versions of traditional money issued by regulated institutions. He believes this approach would maintain the structure of the banking system while delivering the benefits of digital payments.
With the stablecoin market rapidly growing and now valued at approximately $255 billion, Bailey emphasizes the need for careful scrutiny and regulation to mitigate potential threats to the financial system.
