Bank of England Governor Andrew Bailey has warned of a looming “wrestle” between the United States and international regulators regarding the treatment of stablecoins, which he views as a potential threat to financial stability. Speaking at a conference hosted by the BoE, Bailey explained that stablecoins are a form of cryptocurrency typically pegged at a fixed rate to a major currency like the US dollar. These digital assets aim to offer an alternative to traditional banking for domestic or international payments.
While the current United States administration has been keen to promote stablecoins, often backed by US Treasury bills, Bailey, who also chairs the Financial Stability Board, has long expressed scepticism about cryptocurrencies and the risks associated with stablecoins. He emphasised the necessity of international standards for these digital currencies to function effectively as part of the global payments architecture. “If we want stablecoins to be part of the architecture of payments globally… they’re only going to work if we have international standards,” Bailey stated, anticipating a confrontation with the US administration on this front.
Bailey articulated specific concerns regarding the convertibility of some US stablecoins during a crisis. He noted that their conversion to dollars might be reliant on crypto exchanges, potentially limiting their liquidity. Should stablecoins become widely adopted for cross-border payments, a crisis could see hard-to-convert US stablecoins flow into jurisdictions like Britain, which intends to uphold robust convertibility obligations. “We know what would happen if there was a run on a stablecoin – they’d all turn up here,” Bailey cautioned, highlighting the potential for systemic risk.