As the uptake of stablecoins gradually increases, the need for effective regulation becomes critical to preserve economic stability. Bank of England (BoE) Governor Andrew Bailey has highlighted this concern.
In his address at the Andrew Crockett Memorial Lecture on July 3, 2025, he warned that the rise of digital currencies, including stablecoins, might disrupt economic equilibrium if not properly regulated. The concept of a reserve currency has shifted, relying more on secure, liquid assets like US Treasuries rather than fixed monetary anchors.
“First, at least for the large economies, it could be asked today, what is the point of official reserves?”
Bailey cautioned that stablecoins could undermine the public’s trust in traditional money if they gain too much traction, stating that such currencies might be essential for maintaining liquidity during financial crises.
Moreover, he pointed out that the role of reserve currencies has evolved from merely backing currency convertibility to ensuring financial stability amidst capital flows.
Bailey’s upcoming leadership role with the Financial Stability Board underscores his commitment to tackling the challenges posed by stablecoins. He stated,
“Central banks need to carefully examine payment innovation based on stablecoins.”
His remarks coincide with increasing concerns regarding the normalization of stablecoins, especially following a recent landmark bill passed by the US Senate that may lead to a digital dollarization tied to the US dollar.
Bailey emphasized the importance of monitoring how innovations in payment systems may impact traditional regulatory frameworks and financial trust. As discussions about the necessity of official foreign reserves continue, his call for caution remains pressing.
Key Highlights
- The evolving role of reserve currencies now focuses on preserving financial stability rather than just currency backing.
- Authorities are advised to vigilantly oversee shifts in monetary structure to safeguard trust in financial systems.
- Unregulated stablecoin adoption may lead to instability within the financial landscape.
