BoE Chief Warns Banks on Stablecoins, Backs Token Deposits
Bank of England Governor Andrew Bailey has warned major banks against issuing their own stablecoins. He said stablecoins risk draining liquidity, fragmenting deposits, and facilitating money laundering.
Bailey prefers tokenized deposits—digital versions of bank-held funds that stay within the banking system and support lending. His view contrasts with Executive Director Sasha Mills, who sees stablecoins as vital for wholesale markets and calls for modernizing central bank money while keeping a CBDC as the main settlement tool.
Despite Bailey’s caution, banks such as JPMorgan, Citi, and Bank of America are exploring proprietary stablecoins like JPMD to speed up large payments. Bailey also downplayed immediate CBDC issuance. Traders should monitor UK regulation on stablecoins closely, as future rules may restrict bank-led projects, impact stablecoin liquidity, and alter bank reserve flows.
Bearish
Bailey’s warning signals potential regulatory constraints on bank-issued stablecoins, which could dampen stablecoin issuance and liquidity. In the short term, heightened scrutiny may slow the rollout of new bank stablecoin products and reduce investor appetite. Over the long term, stricter rules could limit stablecoin innovation by traditional banks, shifting activity to unregulated issuers or alternative assets. Traders should prepare for possible volatility in stablecoin markets and adjust strategies accordingly.