Main Points:
- Bailey’s Skepticism: BoE Governor Andrew Bailey warns that bank-issued stablecoins could undermine banking system stability and monetary policy control.
- Tokenized Deposits Recommendation: Bailey urges banks to develop tokenized deposits—digitized traditional bank money—under strict regulatory oversight.
- U.S. Regulatory Divergence: The U.S. GENIUS Act, backed by President Trump’s administration, would allow large banks like JPMorgan and Citi to issue stablecoins, deepening a global regulatory split.
- Stablecoin Regulatory Frameworks: The GENIUS Act mandates full reserve backing, monthly disclosures, and dual federal–state oversight for payment stablecoins.
- Global Market Impact: Anticipated U.S. legislation (“Crypto Week”) has fueled record‑high Bitcoin prices and institutional appetite for stablecoins and blockchain platforms.
- CBDC vs. Digital Banking Infrastructure: Bailey suggests strengthening the U.K.’s digital banking rails may be wiser than rushing into a central bank digital currency (CBDC).
- Conclusion: A coordinated global approach to digital money is essential to harness blockchain’s benefits without jeopardizing financial stability.
1. Bailey’s Skepticism of Bank-Issued Stablecoins
In a recent interview with The Times, Bank of England Governor Andrew Bailey expressed deep concerns about global investment banks issuing their own stablecoins. Stablecoins—digital tokens pegged to traditional assets like the U.S. dollar—are designed to combine crypto’s speed with fiat’s stability. However, Bailey argued that they lack the same safeguards as conventional bank deposits and could “siphon money away from the banking system, potentially weakening credit creation and monetary policy control”.
By failing to meet the prudential standards of bank deposits, such stablecoins pose twofold risks: they may erode banks’ deposit bases, reducing funds available for loans, and impair central banks’ ability to influence money supply and interest rates. As Bailey warned, “Stablecoins are proposed to have the characteristics of money… We are going to have to look at it very closely through that lens. It’s both a financial stability issue and a money issue.”.
2. Tokenized Deposits: A Safer Digital Alternative
Rather than embracing proprietary stablecoins, Bailey recommended that banks focus on tokenized deposits—digital representations of existing bank money, secured by the same regulatory framework as traditional deposits. He stated he “would much prefer banks offer digital versions of traditional money”, emphasizing that tokenized deposits preserve depositor protections and central bank oversight.
Tokenized deposits would function on blockchain or distributed‑ledger technology, enabling near‑instant settlement and on‑chain transparency, while remaining backed by safeguarded bank reserves. This hybrid model could deliver crypto‑style efficiencies without compromising financial stability.
3. U.S. GENIUS Act and Growing Regulatory Divide
While the U.K. debates tokenized deposits, the U.S. Congress is advancing the GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins Act of 2025), which has already passed the Senate on June 17, 2025, by a 68–30 bipartisan vote. The House’s “Crypto Week” in mid‑July 2025 is set to consider the GENIUS Act alongside the CLARITY Act and an Anti‑CBDC bill, reflecting President Trump’s pro‑crypto stance and anticipating swift signature into law.
Key Provisions of the GENIUS Act:
- Full Reserve Backing: Payment stablecoins must be backed 1:1 by U.S. dollars or short‑term U.S. Treasury bills.
- Monthly Reserve Disclosures: Issuers must publicly disclose reserve compositions on a monthly basis.
- Prudential Standards: Tailored capital, liquidity, and risk‑management rules set by federal and state regulators.
- Dual Oversight: A combined federal–state supervisory system to mitigate systemic risks.
By creating a clear federal framework for stablecoins, the U.S. aims to legitimize digital dollars, attract institutional investment, and cement the U.S. dollar’s global dominance through blockchain rails.
4. Global Market Impact and Institutional Adoption
The prospect of U.S. regulatory clarity has ignited a rally in digital assets. Bitcoin soared to record highs above $120,000, with Ethereum, Solana, and crypto‑related equities also posting gains, as market participants anticipate increased institutional adoption and 24/7 settlement capabilities.
Industry experts predict that formalizing stablecoin rules will reduce compliance uncertainties that have kept corporate treasuries and financial institutions on the sidelines. As Jag Kooner, Head of Derivatives at Bitfinex, noted, “Institutional sentiment strengthens when lawmakers advance industry‑backed frameworks. Capital previously sidelined due to regulatory uncertainty will re‑enter.”.
5. Comparing Digital Money Frameworks
| Feature | Bank-Issued Stablecoins (GENIUS Act) | Tokenized Deposits (BoE Recommendation) | Central Bank Digital Currency (CBDC) |
|---|---|---|---|
| Reserve Backing | 1:1 in USD or Treasuries | 1:1 in bank reserves | Direct liability of central bank |
| Regulatory Oversight | Dual federal–state | Under existing banking regulators | Central bank |
| Transparency Requirements | Monthly public disclosures | On‑chain auditability via blockchain | Centralized ledger |
| Financial Stability Risk | Potential to siphon deposits | Same safeguards as bank deposits | Highly controlled |
| Innovation Potential | Programmable smart contracts | Faster settlement without new risks | Programmable with high control |
| Global Adoption Prospects | High—leverages big bank networks | Moderate—requires banking infrastructure | Dependent on jurisdictional rollout |
6. CBDC vs. Enhanced Digital Banking Infrastructure
Europe’s ECB plans to issue a retail CBDC within the next few years, aiming to provide a risk‑free digital euro. Bailey suggested that for the U.K., it may be “wiser to enhance digital banking infrastructure” through tokenized deposits than to introduce a CBDC, which could duplicate efforts and incur high implementation costs without immediate necessity.
Tokenized deposits leverage existing bank balance sheets and regulatory frameworks, enabling incremental innovation. By contrast, a retail CBDC would require new legal frameworks, technology platforms, and privacy safeguards—efforts that may not be timely given current digital banking capabilities.
7. Conclusion
Andrew Bailey’s cautionary stance underscores the delicate balance between innovation and stability. While blockchain offers transformative potential for payments and settlement, introducing new forms of digital money without robust oversight could imperil the very system it aims to improve. The U.S. GENIUS Act marks a historic step toward formalizing stablecoins, yet also amplifies a global regulatory split.
A harmonized approach—combining tokenized deposits’ safety with well‑crafted stablecoin rules—could unlock blockchain’s promise while preserving financial stability. As jurisdictions race to define the future of money, coordination among regulators, industry, and central banks will be paramount to ensure that digital finance serves the public good without succumbing to systemic risks.
