UK’s Top Banker Pushes Back Against Big Bank Stablecoins

In Brief:

Bank of England Governor Andrew Bailey warns that allowing major banks to issue stablecoins could destabilize the financial system and enable money laundering.

Bailey prefers tokenized deposits, signaling a cautious UK stance compared to the US's pro-stablecoin direction under Trump.

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Bank of England Governor Andrew Bailey has raised red flags over allowing large banks to issue their own stablecoins, warning that such moves could threaten financial stability, reduce lending capacity, and open the door to illicit financial activity.

In an interview with The Times, Bailey argued that stablecoins could drain deposits from traditional banks, making it harder for them to provide loans. This could lead to systemic risks during market stress, including sudden liquidity shortfalls and the digital equivalent of a bank run. Instead, he supports a shift toward tokenized bank deposits—digital versions of money already held in regulated financial institutions.

Bailey’s remarks reflect a growing divergence between the UK and the US. While the US is embracing stablecoins under the Trump administration's crypto-friendly policies—including the controversial USD1 stablecoin backed by the GENIUS Act—the UK is leaning toward a cautious, bank-integrated approach to digital finance.

Bailey also chairs the Financial Stability Board (FSB), and extended his concerns to include the risk of money laundering through unregulated stablecoin networks. He said the volume and speed at which funds move through these systems could evade traditional oversight mechanisms.

Notably, his comments come as the EU continues to tighten stablecoin regulation under MiCA, emphasizing the need for euro-denominated innovation to preserve monetary sovereignty.

Bailey’s statements also signal a pivot away from a UK central bank digital currency (CBDC). He suggested that a digital pound may not be necessary, calling it “sensible” to focus on digitizing commercial bank infrastructure instead.

By endorsing tokenized deposits, the BoE aims to modernize the financial system without disrupting the existing credit model—maintaining control over monetary transmission while enabling digital efficiency.

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