BoE Chief Andrew Bailey Cautions That Embracing Stablecoins Poses a Risk to Central Banking

As stablecoins gradually gain traction, effective governance and regulation are becoming essential to uphold economic stability. Bank of England (BOE) Governor Andrew Bailey appears to share this perspective.

Bailey has warned that the rise of digital currencies, including stablecoins, may disrupt the economic balance if adequate compliance isn’t put in place.

In comments made during his address at the Andrew Crockett Memorial Lecture on 3 July 2025, he noted the evolving characteristics of reserve currency. The monetary landscape has shifted from viewing a reserve currency as a fixed monetary standard to depending more on secure, liquid assets like US Treasuries, alongside the central bank’s ability to provide liquidity as necessary.

“Firstly, for the major economies, one might inquire today, what is the purpose of official reserves?” he remarked.

Bank of England Governor Andrew Bailey states that Stablecoins could diminish public trust in Money if their popularity escalates. “They may be necessary to bolster financial system liquidity in extreme stress scenarios,” he added.https://t.co/7xPPVWTSXU #BoE #Stablecoins #Crypto

— Budgetrend (@budgetrend) July 3, 2025

In addition, Bailey also discussed the evolving function of reserve currency, emphasizing how it has transitioned from ensuring currency convertibility to upholding financial stability as capital flows in and out of nations.

Bailey warned, “Central banks must scrutinize payment innovations related to stablecoins.”

Bailey, who is set to head the Financial Stability Board, has previously raised concerns about the potential risks associated with stablecoins and intends to address these issues shortly.

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Growth of Stablecoins Could Lead to Digital Dollarisation

Following the significant legislation passed by the US Senate, which legitimizes the use of stablecoins, Bailey’s warnings coincide with rising worries about the widespread adoption of the US dollar-based stablecoin, potentially leading to digital dollarisation.

In sharp contrast, US Treasury Secretary Scott Bessant has praised the stablecoin legislation as a move towards strengthening the dollar’s position as a global reserve currency, amidst concerns over diminishing trust in the dollar’s standing.

“We must carefully observe the progression of payment methods and whether innovations in this area introduce vulnerability into what I would term the ‘money system’,” said Bailey.

During his lecture, he highlighted the necessity for regulators to closely monitor any modifications made to the monetary system, particularly with the emergence of privately issued stablecoins, to ensure any negative impact on monetary trust is minimized.

“If, for example, stablecoins arise as a new type of money, we must determine ways to maintain the unity of money and thus trust in money in this realm, and what role the concept of reserve currency should hold in this context,” he stated.

He added, “The growth of stablecoins could prompt reevaluation of the function of official foreign reserves in today’s major developed economies.”

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“Central banks may come under pressure if stablecoins become widely accepted without sufficient regulations”

Bailey noted that regulators should take steps to clarify the function of reserve currencies as advancements in payment technologies might bypass conventional oversight.

Some analysts hold the view that the rise of stablecoins without international cooperation could lead to fragmentation of the financial system. In the absence of regulations, privately issued tokens risk circulating beyond central authority, complicating economic management and destabilizing cross-border finance.

Authorities are currently evaluating how stablecoins can remain trustworthy and compliant with legal standards as discussions arise regarding their integration into the financial system or their operation outside of it.

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The article BoE Governor Andrew Bailey Warns Adoption of Stablecoins Threatens Central Bank first appeared on 99Bitcoins.