While the cryptocurrency world continues its relentless march toward mainstream adoption, Bank of England Governor Andrew Bailey has emerged as an unlikely voice of caution, urging the world’s largest financial institutions to resist the temptation of issuing their own stablecoins. His warning carries particular weight given the dramatic expansion of the stablecoin market—from $125 billion to approximately $255 billion in under two years—and the mounting systemic risks that accompany such explosive growth.
Bailey’s primary concern centers on the potential for stablecoins to siphon funds from traditional banking systems, thereby undermining the very mechanisms that enable credit creation and economic lending. This isn’t merely theoretical handwringing; the governor fears that widespread adoption could reduce liquidity within established banking networks, creating dangerous volatility that might cascade through interconnected financial markets. The specter of fire-sales following stablecoin collapses adds another layer of systemic vulnerability that regulators find especially troubling.
Stablecoins threaten to drain banking liquidity, potentially triggering cascading market volatility that could destabilize interconnected financial systems.
Rather than embracing either private stablecoins or central bank digital currencies (CBDCs), Bailey advocates for tokenized bank deposits as a more prudent alternative. This approach would digitize traditional money while maintaining existing regulatory frameworks and preserving monetary sovereignty—a remarkably conservative stance that contrasts sharply with more aggressive international positions. The preference reflects deeper concerns about monetary policy effectiveness and overall financial stability in an increasingly digital landscape.
The global regulatory divergence on this issue reveals fascinating philosophical differences about digital currency‘s future. While the United States pursues extensive stablecoin frameworks to bolster dollar dominance, and the European Central Bank favors CBDCs over alternatives, Bailey’s UK takes a markedly cautious approach that prioritizes integration with existing banking infrastructure over revolutionary change.
As chair of the Financial Stability Board, Bailey is uniquely positioned to influence international responses to these emerging risks. His warnings about illicit activities linked to stablecoin collapses and threats to sovereign currency controls underscore the complexity of balancing innovation with stability. The recent GENIUS Act of 2025 established stringent regulatory requirements for stablecoin issuers, including mandatory federal or state licensing and capital reserves, reflecting growing regulatory scrutiny worldwide.
The irony isn’t lost that traditional banking, long criticized for its sluggish adaptation to technological change, now finds itself defended by regulators against the very digital innovations it once ignored.
