• The Bank of England governor warns stablecoins could weaken financial control and harm regulated banking systems.
• Andrew Bailey supports tokenized deposits over private digital currencies for safer digital payment systems.
• Global regulators are taking different paths as banks move closer to issuing their own stablecoins.

Andrew Bailey, Governor of the Bank of England, has warned international banks not to issue their own stablecoins. He expressed concerns that these digital assets present systemic risks to financial stability. Bailey believes that with stablecoins there is a lack of protection and assurance that is normally provided with traditional bank deposits. Therefore, they might destabilize the credit arrangements and weaken the management of national currencies.

Bailey has also cautioned that widespread adoption of stablecoins may divert money out of regulated banks. This change may decrease the capacity of central banks to steer monetary policy. His remarks follow growing interest by large financial institutions and policymakers worldwide in stablecoins.

Tokenized Deposits Seen as a Safer Path

Instead of issuing stablecoins, Bailey suggested that banks focus on developing tokenized deposits. They are digital representations of the conventional money created by authorized financial organizations. They are retained inside of the banking system and subject to the same guarantees as standard deposits. This simplifies their usage and makes them safer.

Bailey held that tokenized accounts could help sustain digital innovation without undermining financial regulation. They allow banks to modernize payment systems while preserving control over money supply. He also noted that tokenized deposits align better with current financial regulations. This approach could help avoid the complications posed by private stablecoins or central bank digital currencies.

Global Divide Grows Over Crypto Regulation

Governments around the world are taking different approaches to crypto regulation. In the United States, lawmakers are preparing to pass the GENIUS Act. This bill would allow commercial banks to issue stablecoins under strict regulation. Supporters believe this could strengthen the role of the U.S. dollar in the global economy.

In contrast, the European Central Bank continues to focus on launching its own digital currency. However, Bailey pointed out that neither the U.S. nor the ECB is prioritizing tokenized deposits. This highlights a growing divide in how global economies handle digital money. These differing approaches could affect financial cooperation in the years ahead.

Stablecoins Trigger Widespread Regulatory Scrutiny

Large banks like JPMorgan, Citi, and the Bank of America are currently considering the issuance of stablecoins. Regulators and central banks have been keen on their plans. Bailey, also Chair of the Financial Stability Board, is more cautious. According to him, stablecoins need to be highly regulated in order not to damage the financial system.

In the meantime, regulators in China, Singapore, and the UAE have issued new regulations in dealing with the growth of stablecoins. These efforts indicate the increased impact of dollar-supported stablecoins. With the market now expanding, coordination around global regulation of digital currencies has become more important.