- Bailey warns stablecoins risky, urges banks to offer tokenized deposits instead.
- Bank of England divided as Mills supports exploring stablecoin market role.
- Big banks like JPMorgan plan stablecoins despite Bailey’s clear strong warning.
Bank of England Governor Andrew Bailey has made it clear that he does not support big banks issuing their own stablecoins. In a recent interview with the Times, Bailey said he would prefer banks to offer tokenized deposits instead. These are the digital versions of conventional money. He says that tokenized deposits allow maintaining money in the banking system, unlike stablecoins that might withdraw it and reduce the lending capacity of banks.
Bailey Warns Stablecoins Need Tough Rules to Prevent Illegal Activity
According to Bloomberg, Bailey said that stablecoins are dangerous unless they obey strict regulations. According to him, stablecoins have to be secure and reliable as people treat them as ordinary money. There is a concern that, without any regulations, stablecoins will provide an opportunity to conduct illegal operations like money laundering. This is why Bailey favors robust rules like those applicable in conventional banking.
Although Bailey is rather cautious, not all people at the Bank of England share the same opinion. Sasha Mills, the Executive Director of Financial Market Infrastructure, gave a speech at the City Week earlier this month. According to her, the Bank remains open-minded regarding stablecoins. She clarified that the Bank is investigating how this technology is possible, particularly in wholesale markets where huge deals occur between banks.
Mills also revealed that the Bank desires that central bank money continue as the primary settlement instrument in the financial system. In her words, the Bank is trying to find a method to make central bank money more up-to-date and helpful. This indicates that there are divided views in the Bank of England regarding the extent to which stablecoins can reach.
Meanwhile, some of the biggest banks in the world do not want to wait and see. Such large banks as Citi, Bank of America, or JPMorgan have already begun to consider the development of their own stablecoins. One example is JPMorgan, which is creating a token, JPMD. Most analysts believe that this may help reduce the cost and speed of payments to large customers.
Bailey Urges Banks to Focus on Tokenized Deposits Over Stablecoins
Bailey has a different opinion. In his opinion, banks can concentrate on tokenized deposits rather than stablecoins. Deposits in the form of tokens do not constitute anything new as it is just a digital form of money that individuals have in their bank accounts. Says Bailey, this would maintain the banking system in good shape since the money remains within banks. This is money that can be lent and can be utilized in other economic processes.
The Bank of England has also been considering the issue of whether it needs to issue its own central bank digital currency, or CBDC. However, it appears to Bailey that he does not want to go that far now. He did not comment much on this issue but indicated that he would not like a CBDC in the near future.
Since the controversy around stablecoins and digital money has risen, it is believed that a clear set of rules should be established. The warning issued by Bailey further compounds the efforts of global regulators to move with speed. He is saying that new technology may assist in modernizing money, but it should be safe and should not undermine the financial system.
Ultimately, the debate on the subject of stablecoins is not finished. The central banks, governments, and banks will continue discussing how they can strike a balance between innovation and safety. In the meantime, the advice given by Bailey is as follows stay safe with money, hold it in banks, and be wary of stablecoins.
