Bank of England Governor Proposes Stablecoins to Reduce UK Bank Reliance

Bank of England Governor Andrew Bailey has proposed that stablecoins could reduce the UK's reliance on commercial banks by enabling a separation of money holding from credit provision, potentially reshaping the financial system. He envisions a system where banks and stablecoins coexist, with stablecoins providing risk-free money backed by assets free of credit, interest, and exchange rate risk, while non-bank entities handle more credit activities. The Bank of England plans to grant widely used stablecoins access to central bank accounts and is preparing to publish a consultation paper to establish a regulatory framework for systemic stablecoins used in everyday payments and financial market settlements. Bailey emphasized the need for stablecoins to have safeguards such as insurance against operational risks like cyberattacks and proposed ownership limits to mitigate risks from large, rapid deposit outflows. While he acknowledged the innovation potential of stablecoins, Bailey cautioned that any shift must be carefully managed to preserve financial stability and the fundamental link between money and credit creation. These comments mark a potential shift in the Bank's stance toward digital assets, moving from skepticism to cautious acceptance and integration.