Bank of England Governor: Rise of Stablecoins May Undermine Confidence in National Currencies

On July 3, Bank of England Governor Andrew Bailey cautioned that the growing prominence of stablecoins could erode public trust in state-issued fiat currencies. Speaking on Thursday, Bailey stressed the need for central banks to monitor vulnerabilities introduced by innovations in payment systems. He noted that if stablecoins become a new form of currency, it is essential to determine how to preserve the unity of fiat money and the role that reserve currencies should play in this evolving environment.

The warning coincides with concerns that dollar-pegged stablecoins could lead to "digital dollarization" if widely adopted in other countries. Last month, the U.S. Senate passed the “Lummis-Gillibrand Payment Stablecoin Act,” a milestone regulation establishing oversight for U.S. dollar-pegged stablecoins.

Treasury Secretary Scott Besant commented that the legislation could help reinforce the dollar’s role as the world’s reserve currency, amid prior concerns over weakening influence under former President Trump’s policies.

Bailey reiterated the importance of monitoring how changes in payment technologies affect monetary stability and highlighted plans to place stablecoin risks on the agenda of the Financial Stability Board, which he will soon chair. He also questioned the current relevance of holding official reserves, suggesting that in today’s financial system, reserves are increasingly vital for maintaining stability under stress.

Last month, the Bank for International Settlements also expressed strong concerns over stablecoins, pointing to risks including loss of monetary sovereignty, lack of transparency, and the threat of capital outflows in emerging markets. In its report, the BIS stated that stablecoins do not qualify as sound money and, if unregulated, could pose significant threats to financial and monetary stability.