Bank of England Governor Andrew Bailey has issued a warning to major banks exploring the idea of issuing private stablecoins. Governor Bailey said he opposes major banks issuing their stablecoins. Instead, he favors tokenized deposits or digital versions of traditional money to preserve lending capacity.
In his interview with the Times, he warns that stablecoins pose risks to financial stability and monetary control. His stance clashes with the pro-crypto policies of Donald Trump, one which is notably the stablecoin legislation that regulates cryptocurrencies pegged to the dollar. Bailey’s concerns have triggered reactions from experts and even banks that have called for a framework regulating stablecoins.
Bailey Advocates for Tokenized Deposits, Not Private Stablecoins
The BOE Governor said that he preferred digital versions of traditional money to stablecoins, which are pegged to a traditional currency. In his defense, he said stablecoins take money out of the banking system, leaving fewer funds available for lending.
He added that stablecoins also undermine sovereignty and monetary control. That’s because private stablecoins are issued by private firms, banks, and fintechs, which may not have proper oversight from the government. The central bank wants to keep things in check, but allowing privately-issued stablecoins will undermine its control.
The Governor urges that digitizing traditional money will keep money circulating in the system and ensure digital payments are carried out within a regulated environment. Tokenized deposits preserve bank functions by maintaining their lending ability to support economic activity. However, it may slow down innovation, in contrast to private stablecoins, which launch faster on-chain payments across the globe.
What’s the Future of Tokenized Deposits?
Bailey, who heads the Financial Stability Board, a body that monitors risks in the global financial markets, once voiced his opinion about a digital pound. He said that he didn’t want the UK to adopt a CBDC. Instead, he preferred the country to head toward digitizing deposits. His comments may push for more crypto projects that prioritize tokenized deposits.
Additionally, they may trigger the establishment of stablecoin safety standards in a joint effort to ensure on-chain transparency. We could witness a future where tokenized deposits are used for everyday transactions. However, it doesn’t mean stablecoins would be discarded, but we could see a tighter oversight for this digital asset class in the future.
While digital versions of traditional money and private stablecoins have their limitations, Bailey’s support for the former reflects stability and sovereignty. He welcomes digital innovation, but not at the expense of regulation and monetary control. Those are two fundamental pillars of any financial system. Tokenized deposits strike the balance between regulation, insurance, and stability, which is why he’s cautious of private stablecoins.
Will the UK Join the US to Oppose a CBDC Finally?
Governor Bailey was clear about his opposition to a CBDC or digital pound, something that tallies with Donald Trump’s policies. The United States President has strongly criticized the adoption of a digital dollar, citing centralization and privacy concerns as reasons for his antagonizing stance.
He hopes his Anti-CBDC Surveillance State Act will pass Congress in the “Crypto Week” to quench the talk of the United States adopting a CBDC.
