Bank of England Governor Andrew Bailey warns large banks against issuing their own stablecoin, prioritizing encrypted deposits instead of stablecoins issued by the private sector.
His perspective highlights the difference in cryptocurrency policies between the UK and the United States, with concerns that stablecoins could disrupt the traditional financial system.
- Andrew Bailey warns that issuing a bank's own stablecoin could weaken the traditional financial system.
- UK prioritizes Tokenizing bank deposits instead of issuing central bank digital currency (CBDC).
- UK and US policies are moving in opposite directions regarding stablecoin acceptance.
What did Andrew Bailey warn about bank-issued stablecoins?
Andrew Bailey, Bank of England Governor, emphasized that privately issued stablecoins could withdraw funds from the traditional banking system, causing financial instability and disrupting lending activities. He prioritizes developing encrypted bank deposits to ensure safety and stability.
He believes that privately issued stablecoins need to be strictly regulated similar to traditional banks to minimize systemic risks. This is a perspective based on deep experience in financial management and his role as chairman of the Global Financial Stability Board (FSB).
The Bank of England considers the issuance of private stablecoins a potential threat to global financial security and promotes digital transformation in a way that benefits the traditional banking system.
Andrew Bailey, Bank of England Governor, 2024
How do UK and US policies differ regarding stablecoins?
While the US government actively supports stablecoin development with a specific legal framework, allowing commercial banks to issue USD-pegged stablecoins, the UK remains cautious and does not view stablecoins as a priority. The US has approved a law allowing bank stablecoin issuance with a total market capitalization of around $2.2 billion for a Trump-linked stablecoin.
In contrast, Andrew Bailey remains committed to strictly regulating stablecoins according to traditional banking system standards, warning of the risk of a new "bank run" caused by stablecoins during a crisis.
The US support for stablecoins is a strong direction, but we need international cooperation to avoid systemic risks and ensure fairness in digital finance.
Andrew Bailey, Financial Stability Board (FSB) Chairman, 2024
Why does the UK prioritize deposit Tokenization over CBDC issuance?
Bailey stated that the Bank of England is not rushing to issue central bank digital currency (Digital Pound) while still needing to carefully assess factors related to privacy, scalability, and impact on retail banking. Instead, the UK aims to encourage commercial banks to digitize traditional deposits.
This perspective differs from the European Central Bank and China, which are conducting trials or have already deployed central bank digital currency. Deposit Tokenization is seen as a solution to maintain the traditional financial system's credibility in the digital era.
How do deposit Tokenization and CBDC differ?
| Criteria | Bank Deposit Tokenization | Central Bank Digital Currency (CBDC) |
|---|---|---|
| Issuance | Commercial banks | Central bank |
| Legal Status | Still part of traditional banking system | Official, legal tender |
| System Impact | Maintains close connection with bank accounts | Replaces or supplements cash |
| Security Priority | Integrated with existing security regulations | Requires separate privacy and security solutions |
How do policy changes affect the cryptocurrency market?
The difference between the UK and US creates significant pressure on legislators to balance technological innovation encouragement and financial stability maintenance. If the US continues to develop a stablecoin-friendly environment, the UK might have to increase control or even change its policy direction.
Currently, transparency, legal status, and stablecoin safety are globally prioritized, especially in the context of the rapidly developing DeFi sector.
Frequently Asked Questions
- What is a stablecoin? A stablecoin is a digital Token pegged to a fiat currency to reduce volatility, typically issued by private organizations or banks.
- Why does the Bank of England warn about stablecoins? Because stablecoins could withdraw Capital from the traditional banking system, causing financial instability and affecting lending activities.
- Difference between deposit Tokenization and CBDC? Tokenization is digitizing commercial bank deposits, CBDC is digital currency issued by the central bank.
- How do US and UK policies differ? The US promotes stablecoin development with supportive legislation, while the UK is more cautious and strictly regulates to protect the financial system.
- How does stablecoin development affect the cryptocurrency market? It creates new development trends but also brings legal risks and market stability concerns that need to be controlled.
