Andrew Bailey, governor of the Bank of England and chair of the Financial Stability Board, has warned major banks against issuing their own stablecoins.

In an interview with The Times, Bailey expressed concerns regarding the potential impact of these crypto assets on financial stability and the concept of money.

Bailey suggested that banks should consider tokenized deposits as an alternative to private stablecoins or central bank digital currencies (CBDCs).

He said, “I would much rather [banks] go down the tokenized deposit streets and say, how do we digitize our money, particularly in payments.”

These comments coincide with ongoing discussions in the US government about key cryptocurrency legislation, including the GENIUS Act. This act may allow the issuance of stablecoins by private companies and banks.

Bailey noted that this contrasts with European approaches, where the European Central Bank is exploring CBDCs and is not pursuing tokenized deposits.

Additionally, Bailey reiterated his skepticism about Bitcoin, advising investors to approach the cryptocurrency cautiously.

🔗 Source: The Block

🧠 Food for thought

1️⃣ Regulatory divergence creates fragmented digital currency landscape

Different major economies are pursuing fundamentally different approaches to digital currency regulation, creating a fragmented global landscape.

The UK’s Bank of England is advocating for tokenized deposits (digital versions of traditional money), while Bailey explicitly notes that “the US is going towards stablecoins” and “the European Central Bank is going towards central bank digital currency” 1.

This split between major financial powers could create challenges for cross-border transactions and global financial stability, especially as stablecoins inherently facilitate international money flows.

The G7 working group on stablecoins previously emphasized the need for a “coordinated approach among jurisdictions” specifically to address regulatory gaps in stablecoin oversight 2.

This divergence also creates uncertain regulatory territory for global financial institutions operating across these regions, potentially forcing them to develop different digital currency strategies for different markets.

2️⃣ Central banks navigate the tension between innovation and control