BoE Governor Backs Stablecoin Regulation Similar to Bank Money

Any stablecoin widely adopted for payments in Britain should face the same rules as bank money, Bank of England (BoE) Governor Andrew Bailey said on Wednesday. He emphasised the need for depositor protections and access to BoE reserve facilities to ensure financial stability.

Shift in Tone from a Crypto Sceptic

Bailey, who has long been cautious about cryptocurrencies, signalled a softer stance in an article published by the Financial Times. He said it would be wrong to oppose stablecoins “as a matter of principle.” However, he noted their current primary role is enabling entry and exit from cryptocurrency markets, rather than serving as a mainstream means of payment.

The BoE will release a consultation paper in the coming months, outlining its approach to regulating stablecoins. Bailey confirmed the paper will propose that widely used UK stablecoins should be granted access to BoE accounts to reinforce their role as recognised money.

Stablecoins and the Banking System

Bailey also raised the prospect of banks and stablecoins coexisting, with non-banks potentially taking on more credit provision. He warned, however, that such changes to the financial system would require careful consideration.

Stablecoins are designed to maintain a steady value and are often backed by assets such as the US dollar or government bonds. Their popularity has risen sharply, with demand expected to grow further after the US passed its GENIUS Act in July, which established federal rules for stablecoins.

Industry Concerns Over Regulation

The crypto industry has voiced concerns about the BoE’s cautious approach. Issues highlighted include potential caps on stablecoin holdings, rules on which backing assets qualify to earn interest, and the criteria the BoE will use to decide which stablecoins fall under regulation.

In his article, Bailey stressed that stablecoins must be “risk-free,” supported by reliable backing assets, insured, and subject to resolution schemes. He added that they should also be easily exchangeable for cash without relying on cryptocurrency exchanges.

In July, Bailey had warned in an interview with The Times that stablecoin technology could draw money away from the banking sector and weaken credit creation. His latest comments suggest a more pragmatic view, recognising a potential role for stablecoins within a regulated framework.

with inputs from Reuters