The Bank of England (BoE) has signaled a dramatic shift in thinking about stablecoins, the cryptocurrencies pegged to fiat currencies. In a recent statement, Governor Andrew Bailey said that any stablecoin “widely used as a means of payment in Britain needs to be regulated like money in a standard bank,” meaning it must come with depositor protection and access to BoE reserves.
This new stance – a departure from Bailey’s past skepticism – reflects growing recognition that stablecoins could someday play a major role in payments. It also means that any stablecoin serving as money must meet the same regulatory safeguards as bank deposits.
As Bailey put it, widely-used UK stablecoins “should have access to accounts at the [BoE] to reinforce their status as money”. The BoE plans to consult on a comprehensive “systemic stablecoin” regime, alongside parallel FCA rules, to flesh out exactly how crypto tokens can safely coexist with the traditional banking system.
Stablecoins already permeate crypto markets – with nearly $300 billion in circulation, dominated by dollar-pegged tokens USDT and USDC – but the BoE’s call means that if these tokens ever become mainstream money for UK payments, they’ll effectively become bank-like. Regulators worldwide are watching closely: similar themes appear in the EU’s MiCA rules, the US’s new GENIUS Act, and proposed frameworks in Asia.
What stablecoins are, how Bailey’s remarks fit into broader regulation, and the consequences for finance are all critical questions as stablecoins move from crypto fringe to potential “future of money.”
What are Stablecoins and How Do They Work
A stablecoin is a cryptocurrency designed to hold a steady value, usually by pegging 1:1 to a traditional asset like a fiat currency. Unlike volatile tokens such as Bitcoin, stablecoins aim for price stability. They typically do this by holding reserves (currency, bonds, or other assets) equal in value to the coins in circulation, or by using algorithms to adjust supply. There are four main stablecoin models:
- Fiat-collateralized: Each coin is backed by fiat currency (e.g. U.S. dollars) or equivalents. For example, Tether’s USDT and Circle’s USDC are claims on dollar reserves or securities.
- Crypto-collateralized: Backed by other cryptocurrencies. For example, MakerDAO’s DAI is backed by locked-up Ether or other crypto collateral, often over-collateralized to absorb price swings.
- Commodity-backed: Pegged to commodities like gold or oil. These are less common.
- Algorithmic: No actual reserve; the system algorithmically expands or contracts coin supply to maintain the peg (e.g. the now-defunct TerraUSD). Algorithmic coins carry the highest risk of losing their peg.
Stablecoins function as on-chain tokens but with features meant to make them as safe as money. Typically, the issuer holds reserves (cash, bonds, or stable assets) in a custody account, and allows redemption of coins for fiat at a stable rate. Users can store, send, and receive stablecoins in cryptocurrency wallets just like other tokens, but expect their value to stay around the peg (for example, £1 per token for a pound-linked stablecoin). In practice, many stablecoins trade very close to their peg, though occasional deviations and scandals (e.g. Terra’s collapse or Tether’s backings) have shown the risks if confidence falters.
Although stablecoins were invented for crypto traders – nearly 90% of stablecoin transactions have involved trading or moving between exchanges, not buying goods – their use is expanding. Innovations like smart contracts and decentralized finance (DeFi) have built services on stablecoins (e.g. lending platforms, tokenized funds).
Stablecoins are also being eyed for real-world payments: Visa has already piloted cross-border payments via a stablecoin (USDC) on a blockchain, settling transactions in minutes instead of days, and PayPal introduced its own stablecoin (PayPal USD) for global transfers. In short, stablecoins fuse crypto rails with a promise of stability, making them a critical bridge between digital assets and mainstream finance.
That promise has attracted regulators’ attention. Under upcoming UK rules, stablecoin issuers will fall under a new cryptoassets regime. The UK Financial Conduct Authority (FCA) and Bank of England are coordinating on this. The FCA’s 2025 consultation paper defines “qualifying stablecoins” as cryptoassets that aim for a stable value by referencing fiat currencies and notes they “have the potential to drive efficiency in payments and settlement, with particular benefits for cross-border transactions”.
Any stablecoin aspiring to be used like cash must also publish clear disclosures about its backing and operations. The BoE, meanwhile, is considering a “systemic stablecoin” regime for those widely used as money, which will align with the FCA’s rules on custody and issuance. The bottom line: while stablecoins can offer faster, cheaper payment rails (cutting costly fees on remittances, for example), regulators insist that if stablecoins are to become money-like, they cannot be unregulated digital tokens – they must carry the full safety features of bank deposits.
The Bank of England’s Stance and Bailey’s Remarks
Bank of England Governor Andrew Bailey has been a long-time critic of unchecked crypto, warning in mid-2025 that stablecoins could “pull money out of the banking system” and threaten credit creation. But in a recent commentary in the Financial Times, Bailey struck a notably softer tone. He stated flatly that any stablecoin “widely used as a means of payment in Britain needs to be regulated like money in a standard bank”. This means such stablecoins must meet all the regulatory standards of banks: full asset backing, clear redemption at par, and depositor insurance or resolution schemes. Bailey went on to clarify that widely-used UK stablecoins should have access to BoE accounts, just as banks do, “in order to reinforce their status as money”.
Bailey stressed that while he is not categorically anti-stablecoin (“it would be wrong to be against stablecoins as a matter of principle”), current large stablecoins have so far mostly been used for trading, not as general-purpose payments. He hinted that future stablecoins could co-exist with banks: in principle, “it is possible…to separate money from credit provision, with banks and stablecoins coexisting and non-banks carrying out a greater portion of the credit provision role”. In other words, banks might focus on lending and stablecoins on payments. But Bailey urged caution: any such shift “requires careful consideration” of the implications.
In practical terms, the BoE governor delivered a clear message: stablecoins that aspire to be real money must become much more like deposits.
He said that the BoE will soon release a detailed consultation paper on the UK’s systemic stablecoin regime. In this upcoming framework, the BoE has already signaled that backing assets need to be essentially risk-free. In his FT article he wrote that stablecoins “really do have to have the characteristics of money and maintain their nominal value,” including being backed by safe assets.
He explicitly said stablecoin issuers should hold only high-quality backing assets (like cash or government bonds), be part of insurance or resolution schemes, and allow redemption into cash without relying on volatile crypto exchanges. This approach would eliminate the scenario where a stablecoin’s reserve is tied up in risky loans or instruments – a concern Bailey mentioned when he noted that “most of the assets backing commercial bank money are not risk-free… The system does not have to be organised like this”. In short, Bailey wants stablecoins to act more like central-bank-backed deposits than like typical crypto tokens.
Alongside these remarks, the BoE has been working through the details. In mid-2025 speeches and reports, BoE officials have indicated that earlier proposals (like forcing all stablecoin reserves into non-interest-bearing BoE deposits) might be relaxed. For example, the BoE now appears willing to allow some proportion of backing assets to earn yield, as long as they are ultra-safe assets (High-Quality Liquid Assets like government bonds). The BoE is also contemplating transitional caps on how much stablecoins users can hold in aggregate, to prevent sudden shifts away from bank deposits during the transition to digital money. Any final rules will be subject to consultation with industry, but the clear theme is that stablecoins used as money must be treated as equivalent to bank deposits.
Why Bank-Like Standards for Stablecoins?
Regulators see several reasons why stablecoins need full banking safeguards if they truly function as money:
Depositor Safety: A stablecoin used for everyday payments and savings essentially becomes a store of value. Without protection, a run on a large stablecoin (if confidence falters) could wipe out ordinary people’s savings almost overnight. By contrast, bank deposits in the UK are insured (via the Financial Services Compensation Scheme) up to £85,000 per person, and banks have resolution regimes. The BoE now insists stablecoin holders must get similar guarantees. Bailey said stablecoins should be “risk-free with backing assets, protected by insurance and resolution schemes”. In practice, this means that if a UK-regulated stablecoin collapsed, holders would be made whole by some resolution fund or deposit insurance, just as bank depositors would be (rather than losing money in chaos).
Financial Stability: If a stablecoin became widely used, it would effectively operate as a parallel currency system. Unchecked, a big stablecoin crisis could threaten the wider financial system. Central bankers worry about the “systemic” implications of private digital tokens. As the Bank for International Settlements (BIS) has warned, stablecoins pose risks to monetary sovereignty and stability unless tightly supervised. One fear is a “digital run”: if holders suddenly rush to redeem a pegged token for cash or assets, issuers might have to liquidate large reserves at once, causing market stress (the BIS warns of “fire sales” of treasury or other assets during a crash). Bailey’s own concern has been that stablecoins could drain deposits from banks, shrinking the funding base for lending. He noted the risk of “large and rapid outflows of deposits from the banking sector – for example, sudden drops in the provision of credit to businesses and households” if stablecoins scale up. In other words, if many people moved money from their bank accounts into stablecoins, banks would have less to lend, potentially tightening credit in the economy. The BoE believes that by giving stablecoins deposit-insurance equivalence and imposing possible user limits (like £10-£20k per person during a transition), they can mitigate those systemic risks.
Monetary Control: Central banks influence the economy by managing the supply of central bank money (banknotes and reserves). If private stablecoins become a major payment medium, monetary policy transmission could weaken. Bailey has raised the possibility that if commercial banks have fewer deposits (because stablecoins are used instead), “the banking system would be structured very differently”and the tools of policy could be blunted. Moreover, if stablecoins rely on commercial banks entirely (e.g. all reserves on deposit at banks), that could itself introduce credit risk into money. By insisting stablecoin reserves include safe central bank assets, the BoE keeps monetary influence and ultimate liquidity at the center. The Governor has thus argued that tokenized bank deposits (digital pounds) may be a safer innovation path than privately issued stablecoins, since they keep central bank money at heart.
“Same Risk, Same Regulation”: The BoE repeatedly emphasizes parity between new and old. If a stablecoin acts like a bank deposit, it should have the same regulatory outcome as that deposit. In policy terms, regulators say “if something looks like a deposit, it should be regulated as a deposit.” That is why Bailey insists on banking safeguards: the goal is to preserve confidence in money. As the BIS puts it, “money requires confidence… a lack of trust in money speaks to financial instability”. Allowing a widely-used private token without strong safeguards would undermine that confidence.
In summary, the BoE and other regulators want to avoid a repeat of past crypto crashes (e.g. algorithmic TerraUSD in 2022) on a much larger scale. They see regulated stablecoins as potentially useful – but only if holders are as safe as bank depositors. So they are proposing exactly that: strong reserve rules, redemption rights, and deposit-like protections to neutralize systemic risks.
Regulatory Context: UK, EU, US, and Beyond
The Bank of England’s stance is part of a broader global trend of bringing stablecoins into the regulatory perimeter. Here is how the UK approach sits alongside other frameworks:
United Kingdom (BoE & FCA) – The UK government is creating a comprehensive crypto regulation regime. In May 2025 the FCA published a consultation (CP25/14) on rules for issuing “qualifying stablecoins” and safeguarding their backing. The FCA defines qualifying stablecoins as those “aimed at maintaining a stable value by referencing fiat currencies” and notes they can boost efficiency (especially cross-border). These proposals require issuers to ensure coins maintain their peg, provide clear information on reserves, and obey anti-money-laundering rules. The BoE will publish its own consultation on a “systemic” stablecoin framework later, focusing on coins intended as money. BoE officials have emphasized coordination: the FCA will work closely with the Bank on the upcoming regime. Once finalized (expected by 2026), UK stablecoin rules will demand full backing, redemption at par, and deposit-like safeguards for any stablecoin reaching significant payment use.
European Union (MiCA) – The EU’s Markets in Crypto-Assets Regulation (MiCA), enacted in 2023, already sets out detailed stablecoin rules for the bloc (effective mid-2024). MiCA requires that so-called e-money tokens (stablecoins pegged 1:1 to a fiat currency) and asset-referenced tokens (stablecoins pegged to a basket of assets) be issued by licensed entities and be 100% backed by reserves. Both MiCA and the new U.S. law converge on one major principle: strict one-to-one backing and redemption. As the World Economic Forum notes, both frameworks now mandate that regulated stablecoin issuers “hold reserves in a conservative, one-for-one ratio against all stablecoins in circulation”, and grant holders the unconditional right to redeem their coins for fiat at par. MiCA, in fact, goes even further by effectively banning algorithmic or uncollateralized stablecoins outright. Banks and fintechs in Europe now operate under a rulebook: no reserves, no launch, and full accountability if something goes wrong.
United States (GENIUS Act) – In July 2025 the U.S. Congress passed the “Guaranteeing Exchange and Nurturing Innovation in US Stablecoins Act” (GENIUS Act), bringing stablecoins firmly under federal regulation. GENIUS requires that payment stablecoins be fully backed by liquid assets – specifically U.S. dollars or short-term Treasuries – with monthly public attestations of their reserves. It also forbids any issuer from suggesting the stablecoin is backed by the U.S. government or insured by the FDIC. Crucially, the law requires that in the event of an issuer’s collapse, stablecoin holders get priority repayment over other creditors. Like MiCA, GENIUS mandates redemption at par and clear transparency. Its sponsors explicitly tout the new rules as a way to protect consumers and cement the U.S. dollar’s global role – by “driving demand for U.S. debt” with stablecoin reserves. In many respects, the GENIUS Act aligns with the EU’s stance: both treat regulated stablecoins almost like digital bank deposits or electronic money tokens, with no optional alpha.
Asia (Hong Kong, Singapore, etc.) – Several Asian regulators are also moving quickly. Hong Kong’s Monetary Authority (HKMA) in August 2025 implemented a stablecoin licensing regime: stablecoin issuers must be licensed, keep full reserves, and follow anti-money-laundering rules. Initially only a “handful” of licenses will be granted, as the HKMA phases in regulation. Singapore’s MAS finalized a framework in 2023 for single-currency stablecoins pegged to SGD or G10 currencies. That framework requires 100% backing by safe assets, prioritizes prompt redemption and transparency, and subjects large stablecoin issuers to a capital regime, essentially treating regulated stablecoin issuance like a special payment service. Other Asian economies (such as South Korea and Japan) likewise require stricter custody of reserves and transparency for any large stablecoins. The upshot: in major economies, the message is consistent. Stablecoins can circulate, but only within the guardrails of banking-style regulation.
To summarize, the UK is aligning with a global movement. MiCA and GENIUS together mean that by 2025 large stablecoins in the EU and US will look a lot like regulated bank instruments – and the BoE is pushing for the same in Britain. These rules all aim to prevent regulatory arbitrage and “shadow” stablecoins that could evade supervision. At the same time, industry worries that the UK’s proposals (caps on holdings, strict reserve criteria) are more stringent than anywhere else, potentially putting Britain at a disadvantage if crypto projects relocate or if mainstream adoption is slowed.
Industry Reaction and Concerns
Bailey’s call for banking-grade stablecoins has drawn pushback from the crypto industry. British crypto firms and trade groups, for instance, have strongly criticized proposals like user holding caps. The BoE has floated temporary limits (e.g. £10,000–£20,000 per individual, £10 million per firm) on how much one can hold in any “systemic” stablecoin. Industry representatives say these are unrealistic.
Tom Duff Gordon of Coinbase noted that no other major jurisdiction is imposing such caps, calling them a “challenging and costly” restriction. Nick Jones, CEO of crypto firm Zumo, said the cap idea reflects BoE “skepticism…toward digital assets” and warned it would “stifle growth” and undermine the UK’s competitiveness in the digital economy. Similarly, the UK Cryptoasset Business Council argued that enforcing holding limits would be near-impossible without constant identity tracking and new infrastructure.
Other industry concerns include the composition of backing assets. Early BoE drafts had suggested all reserves sit in non-interest BoE deposits, which industry said would kill the business model. The BoE has since softened this by allowing high-quality government bonds to earn interest on behalf of stablecoins, but issuers still worry about restrictions.
Another flashpoint is how “systemic” status is defined: which tokens would fall under the BoE’s new rules and which would remain in a lighter FCA regime? Firms point out stablecoins are inherently borderless and pseudonymous, making it hard to segregate them by jurisdiction. As one expert notes, imposing strict UK-only standards on tokens used globally could push activity offshore unless internationally coordinated.
Notably, the industry response varies by stablecoin type. Large U.S. issuers like Tether (USDT) and Circle (USDC) are watching closely. Both already promote transparency, but neither has deposit insurance or BoE accounts, so under the new thinking they would not qualify as “widely used money” in the UK unless they radically change. A few proprietary stablecoins are even more at risk: algorithmic and crypto-collateral coins are effectively banned by MiCA and would never meet BoE’s standards.
Even consumer-friendly offerings like PayPal USD (PYUSD) – a new stablecoin backed by dollar deposits – would need UK regulatory approval to function as money here. Some crypto firms argue that tightening rules like these will just relegate stablecoin development to jurisdictions with lighter rules, or create a black market of unofficial tokens. But others concede that at least the new regime provides clarity: stablecoin projects will know what they must do to be usable for mainstream UK payments.
Market and Systemic Risks with Stablecoins
Regulators’ heavy scrutiny of stablecoins is rooted in past market failures. The collapse of algorithmic stablecoins like TerraUSD in 2022 and crypto crashes (e.g. FTX in 2022) demonstrated how fast confidence can evaporate. If a popular stablecoin lost its peg, its holders might all rush to redeem or sell, causing a spike in asset sales.
The BIS warns that even fully-reserved stablecoins could destabilize markets if not properly regulated: in a crisis, mass sales of the backing assets (e.g. Treasuries) would drive down prices and spread losses. In the absence of insurance, stablecoin runs could cascade: as one issuer fails, others might be caught up (investors panicking), threatening the “money-like” system.
There is also a concern of contagion to banks. In many jurisdictions, stablecoin reserves are held in commercial bank accounts. A large stablecoin run might force banks to cover redemptions or could suddenly withdraw deposits held in the banking system. This could strain banks’ liquidity, just as depositors fleeing one bank can precipitate a run. Bailey has warned that large outflows into stablecoins would weaken banks’ ability to lend, potentially choking off credit to households and businesses.
Other issues include anti-money-laundering (AML) and sanctions. Crypto’s pseudonymous nature means stablecoins could, without checks, be used to evade controls. The GENIUS Act explicitly subjects issuers to strict AML compliance, and the EU and UK rules similarly embed AML measures. Regulators want to avoid a scenario where unregulated stablecoins become a vehicle for crime or sanctions-busting.
In short, authorities view stablecoins through a financial stability lens. They treat widely-used stablecoins as akin to “shadow banks” or private digital banknotes. The BIS has cautioned that without the “same regulation” as the banking sector, stablecoins could undermine the traditional monetary system. For example, if tech companies issued global stablecoins, profits could soar without leaving seigniorage to national governments. The global regulatory crackdown – MiCA, GENIUS, etc. – was largely galvanized by the fear of a new unregulated “Libra-like” coin destabilizing economies. The BoE’s position is a domestic embodiment of this global caution: stablecoins must ultimately reinforce, not threaten, monetary sovereignty.
Potential Benefits of Banking-Standard Stablecoins
Despite the strict stance, there are clear upsides if stablecoins are made safe and robust. A regulated stablecoin system would combine the agility of crypto with the trust of banking. First, reduced volatility for users: if stablecoins hold only high-quality liquid assets (e.g. central bank reserves or Treasuries) and are insured, their peg would be nearly guaranteed.
Consumers and businesses could accept stablecoins for everyday payments without worrying the value will suddenly swing. For example, Visa’s trial used USDC on a blockchain to settle cross-border transactions, bringing down settlement times from days to minutes. Similarly, PayPal’s stablecoin allows almost-instant transfers across countries. In a regulated environment, those processes become even safer.
Second, integration into mainstream payments: Banks and fintechs could plug regulated stablecoins into existing payment rails with confidence. Tokenized stablecoins could settle on blockchain while still drawing on central bank money. For instance, a UK Finance report notes that tokenizing fiat deposits lets banks “innovate while keeping payments inside the regulated banking system”. This opens the door to cheaper, 24/7/365 payment networks. Cross-border trade could benefit too: stablecoins can drastically cut remittance costs (often 3–6% per transfer). Proponents argue that if major currencies issue credible stablecoins, global transactions can be as fast and low-cost as sending an email.
Third, consumer confidence and financial inclusion: Stablecoins under banking rules would come with clear consumer rights. Every stablecoin holder would have a legal right to redeem at face value, and the assurance of resolution mechanisms if the issuer fails. This is a big contrast with current crypto: exchanges or token issuers could go bankrupt and leave users empty-handed. With deposit-like protections, stablecoins can be a trusted digital alternative to cash. That could especially help those with limited access to traditional banking, allowing them to hold a safe store of value on a phone.
Finally, innovation within guardrails: Regulated stablecoins would give technologists a clear framework. Instead of ad-hoc projects, developers could design new financial products knowing what rules must be met. The BoE and other regulators often emphasize “same risk, same outcome” – for example, stablecoins used in core markets could count as risk-free settlement assets, easing integration with financial contracts. The BIS even suggests that a unified digital ledger integrating central-bank money, bank deposits, and tokenized assets could improve transparency and interoperability. In theory, stablecoins meeting these standards could underpin new financial ecosystems (e.g. tokenized bonds or securities settled in stablecoins), blending innovation with stability.
In sum, the benefit of driving stablecoins into a regulated, bank-like box is that we get their speed and tech edge without giving up on the safety nets of traditional finance. Consumers gain confidence and convenience, while policymakers maintain the integrity of the monetary system. Authorities in the UK, EU, and US are essentially betting that this “best of both worlds” path is the future of money.
Stablecoins and Banks: Complement or Competition?
Bailey’s vision implies a mixed ecosystem of banks and stablecoins. Under his scenario, banks would focus on lending (“credit”), and stablecoin issuers would handle money-like payments, but under tight supervision. This raises questions about how banks and private issuers might compete or cooperate.
On one hand, stablecoins could be competition for banks. If people move funds into stablecoins for transactions and savings, banks could lose deposit funding (as Bailey feared). Banks would then have to offer more competitive terms (higher interest or services) to retain customers. Some worry that in the long run, if stablecoins became as easy and safe to use as bank accounts, the old model of fractional banking might shrink. Indeed, Bailey suggested that tokenized bank deposits (digital pounds issued by banks on-chain) might be safer for credit creation than privately issued coins.
On the other hand, banks are actively embracing the technology. In late 2025, major UK banks – HSBC, NatWest, Lloyds and others – joined a pilot project to issue tokenized sterling deposits on blockchain platforms. This pilot, backed by UK Finance and others, aims to use tokenized bank money for things like marketplace payments and mortgage refinancing. The banks see tokenized deposits as complementary – giving the benefits of blockchain (speed, programmability) while remaining in the regulated banking system. As one HSBC executive noted, tokenized deposits have the promise of fast cross-border transactions, a use case also touted by stablecoins. In fact, Bank of England speeches highlight tokenized deposits as preserving “the protections and credit creation capacity of traditional deposits”.
This suggests two possible paths. In one, banks and crypto firms carve out niches: banks offer trusted, insured tokenized accounts, while regulated stablecoins (perhaps issued by fintechs or consortiums) handle broad payments. In another, stablecoins become effectively another form of tokenized deposit. For example, USDC or a future UK stablecoin could qualify as an “e-money token” under new rules and function very much like a bank deposit in a wallet, just issued by a non-bank. The BoE’s emphasis on giving stablecoins reserve accounts and insurance hints at this. However, for that to happen, stablecoin issuers may need to become quasi-bank entities (subject to capital and liquidity requirements). Otherwise, banks themselves might issue the stablecoins (through subsidiaries) to keep control.
Overall, the BoE appears to want both: it wants banks to innovate (by tokenizing deposits) and also wants private stablecoin initiatives to operate safely. The likely end state is a blended system: some banks will compete by offering their own digital tokens, while crypto-native stablecoins will either partner with banks or adapt to banking-like regulations. Either way, traditional banks and stablecoin networks will probably end up interwoven in the payments infrastructure of the future.
Global Financial Context
Stablecoins do not exist in isolation. Changes in UK regulation will have global ripples, especially for cross-border payments and currency sovereignty.
Cross-Border Payments: One of the touted benefits of stablecoins is slashing international transfer times and costs. Today, sending money overseas can take days and cost 5–7% of the amount. Blockchain-based stablecoins can settle in minutes. For example, Visa’s pilot used USDC on a blockchain to clear cross-border trade in under an hour, and PayPal’s token enables instant person-to-person payments across many countries. If major currencies launch widely-trusted stablecoins, businesses and remitters could bypass slow correspondent banking. The BoE’s rules could either accelerate this (by giving stablecoins real legitimacy) or complicate it (if compliance slows innovation). Still, in principle, a robust stablecoin network could drastically improve global payment efficiency – which is why regulators say we need rules before adoption, to ensure the system can handle new flows safely.
Central Bank Digital Currencies (CBDCs): Many central banks are exploring CBDCs (digital versions of banknotes). In the UK, a digital pound is under consideration. It is not clear how a regulated stablecoin regime will interact with a potential CBDC. One possibility is complementarity: stablecoins could serve niche uses (e.g. programmable money in commerce), while a CBDC provides a universal public option. Another is substitution: if tokenized deposits and stablecoins provide what a retail CBDC would, the demand for a digital pound might diminish. For global context, the BoE and other authorities likely see CBDCs and regulated stablecoins as part of the same modernization of money. The emphasis, however, is that whether money comes from a central bank or a regulated stablecoin, it must remain safe.
Global Currencies and Dollar Dominance: The GENIUS Act explicitly frames U.S. stablecoin policy as a way to strengthen the dollar’s global role. By requiring stablecoins to hold Treasuries, U.S. regulators aim to boost demand for U.S. debt and cement the dollar’s reserve status. EU policymakers worry about regulatory arbitrage: if the U.S. welcomes stablecoin issuance under its rules, might dollar-based stablecoins crowd out European and British coins? The BoE’s regime may be partly motivated by preventing the pound from losing ground; it ensures that a future “GBP stablecoin” would be robust and not tarnished by collapses abroad. On the other hand, if the UK lags in offering a regulatory framework, UK businesses might end up using dollar stablecoins just as they use US-based tech. By aligning with transatlantic standards (as the WEF notes, MiCA and GENIUS converge on key points), the UK reduces the chance that stablecoin issuance flows only to the U.S. or EU.
International Cooperation: Finally, the BoE’s actions are part of a larger international effort. Bailey has become chair of the G20’s Financial Stability Board, where stablecoins are a hot topic. The G20 and Financial Stability Board have been pushing for global stablecoin standards so that a failure in one country doesn’t spread worldwide. The BoE’s insistence on banking standards is very much in line with this global angle: regulated stablecoins will be able to operate internationally only if jurisdictions recognize each other’s safeguards. In fact, the U.S. GENIUS Act even encourages the Treasury to pursue regulatory “passporting” agreements with credible foreign regimes, hinting that U.S. stablecoin issuers could reach UK or EU customers if the UK’s rules are deemed equivalent.
In sum, how the UK handles stablecoins will influence cross-border money flows and the competitive position of the pound. A strong regime could make “British” stablecoins more credible internationally; a weak one could see dollars and euros dominate UK crypto rails. But the trend is clear: global money is becoming tokenized, and central banks want to shape that change rather than be overwhelmed by it.
Concerns from Crypto Advocates
Unsurprisingly, crypto advocates have voiced worries about the BoE’s approach. The chief complaint is that over-regulation will stifle innovation. Requiring stablecoin issuers to hold everything in central bank accounts, buy insurance, and verify user identities (for enforcing caps) could erect huge compliance costs.
A UK industry leader quipped that imposing holding limits would need “digital IDs or constant coordination between wallets” – a practical challenge that might deter new projects. Coinbase’s Tom Duff Gordon observed that “no other major jurisdiction has deemed [caps] necessary”, implying the UK might isolate itself. Critics worry this pushes creators to launch in more permissive places, or to design stablecoins that skirt the rules (e.g. algorithmic coins or decentralized pools).
Another concern is loss of decentralization. Many crypto purists see the appeal of stablecoins in being outside the traditional banking system. For them, Bank of England involvement – reserve accounts, official insurance, BoE access – feels like defeating the purpose. They fear that regulated stablecoins will simply become digital bank accounts with a fancy veneer.
On the other hand, some argue this is inevitable if stablecoins are to achieve the trust needed for mass use. As one UK crypto commentator noted, central banks apparently want to “tokenise deposits” instead – essentially turning commercial bank money into blockchain tokens – rather than allow fully independent stablecoins.
There is also a philosophical debate about flexibility versus safety. Crypto entrepreneurs point out that bit.ly and PayPal succeeded by breaking old rules; perhaps digital money needs its own model. But regulators counter that money is special: missteps can cause a financial crisis. The BoE’s “it should be possible to have innovation in the form of money” commentacknowledges that stablecoins can drive payment innovation, but the phrase “as a form of money” was qualified with all the caveats we’ve discussed. In practice, any stablecoin used like sovereign money will have to pay in stability.
Final thoughts
What can crypto users and issuers expect? The Bank of England’s position suggests that widely-used stablecoins in the UK would effectively become bank-equivalent liabilities. A stablecoin provider would need to operate with bank-like capital and liquidity, and stablecoin holders would enjoy the same protections as bank customers. This could mean a couple of things:
Stablecoins could become indistinguishable from bank deposits. If a stablecoin meets all BoE criteria – fully backed, insured, central bank account – then holding that token could feel just like holding a balance in a bank account. For practical purposes, the token might be redeemable on demand, up to covered limits. In that sense, a regulated stablecoin could simply be a tokenized bank deposit, possibly issued by a bank or by a licensed e-money firm.
The line between banks and stablecoin issuers may blur. Banks themselves might issue stablecoins (on separate balance sheets) to capture new markets, especially for digital services and cross-border clients. Non-bank issuers (Fintechs, consortia) might have to partner with banks or obtain special licenses. Either way, any issuer will need to be heavily supervised by the BoE or FCA. For example, USDC’s issuer, Circle, might need a UK banking license or to set up a regulated affiliate to continue operating to retail users in Britain.
Tokenized deposits may become commonplace. We’re already seeing UK banks pilot tokens that are literally the digital form of pounds on a blockchain. If stablecoins regulated as deposits become the norm, we might see a future where all money – central bank, commercial bank, or private e-money – lives on distributed ledgers. The Bank of England appears to encourage this evolution, stating that tokenized bank deposits preserve stability while enabling innovation. In that scenario, a consumer’s money could be held as a digital token (whether issued by a bank or stablecoin firm), but still subject to deposit insurance and central bank oversight.
Competition in financial services. The rise of safe stablecoins could push new entrants into banking. For instance, a tech company could apply to become a “digital pound stablecoin issuer” and offer deposit-like accounts that live in crypto wallets. Consumers could then choose between holding their savings in bank token accounts or stablecoin accounts, similar to choosing between banks today. This may spur competition on interest rates and digital services. But regulators have signaled that all such platforms – whether a traditional bank or a crypto startup – will have to meet stringent requirements if they want to serve the payments market.
In practical terms, UK stablecoin issuers (like Circle or even PayPal) will need to watch the coming consultations closely. If the rules are as Bailey suggests, these firms may need to secure deposit insurance, hold Treasury-like assets, and integrate with the BoE’s settlement systems. Crypto users in the UK should not expect to use fully unregulated stablecoins for everyday payments indefinitely. Instead, we will likely see a shift toward a smaller number of regulated stablecoins (and tokenized deposit products) that institutions can trust. For now, BoE and FCA have opened the conversation – the rules are still being written, but the message is clear: innovation will be allowed, but stability cannot be sacrificed.
In conclusion, the Bank of England’s vision is one where the benefits of stablecoins (speed, programmability, global reach) can be realized without forfeiting the safety net of banking. Andrew Bailey’s bottom line is that the future of money in the UK – even in digital form – must meet full banking standards. The days when any crypto token could circulate as cash-like currency are numbered; the stablecoins that survive will be those built to banking standards from the ground up.