Bank of England Says Stablecoins Could Weaken Trust in Money

The Bank of England has warned that stablecoins could weaken trust in traditional money if they grow too popular. During a lecture at the Andrew Crockett Memorial, Governor Andrew Bailey raised his concerns. He said central banks need to “watch carefully” how payment systems are changing. 

Stablecoins are digital currencies that are tied to real-world money, like the US dollar, to keep their value steady. But Bailey is worried that if they become widely used, they could shake the foundation of the financial system.

“If, for instance, stablecoins emerge as a new form of money, we have to decide how to ensure the singleness of money and therefore trust in money in this world,” Bailey said .

He added that questions must be asked about the role of reserve currencies if private stablecoins grow stronger. Bailey suggested that the real use of official reserves today might be more about handling stress in the system than backing up a currency. “They may be needed to support financial system liquidity in situations of extreme stress,” he said.

His remarks come as US lawmakers recently pushed forward legislation on stablecoins. The bill, which is called the GENIUS Act, was passed in the Senate last month. It aims to regulate the industry and give it legal clarity. Those who support it believe it could make the dollar stronger by encouraging the use of dollar-backed coins around the world.

US Treasury Secretary Scott Bessent is among those who backed the legislation. He said it could help protect the dollar’s global role at a time when its power is facing new tests. However, some experts worry that countries using these digital dollars might end up relying too much on the US, which could create a kind of “digital dollarization.”

Bailey, who will soon become the new head of the Financial Stability Board, has often warned that new types of money could bring new risks. He said that central banks should keep a close eye on how payment methods are changing and how those changes could affect trust in the system.

“We need to watch carefully the evolution of payments forms and whether innovation here introduces fragility into what I would call the ‘money system,’” he noted.