Well lets break out the Champagne! After years of dithering, The Bank of England is preparing to unveil a new regulatory framework for stablecoins, with governor Andrew Bailey signalling a more nuanced approach to the digital assets.
Bank of England softens on stablecoins
In a Financial Times opinion piece, Bailey argued that it would be “wrong to be against stablecoins as a matter of principle”, suggesting the tokens could play a valuable role in reshaping payment systems and, potentially, the structure of modern finance.
Stablecoins are digital tokens that maintain a one-to-one peg with a traditional currency, most commonly the US dollar.
They form a cornerstone of cryptocurrency trading and are increasingly used in cross-border payments. Global circulation already approaches $300bn, dominated by dollar-backed coins such as Tether’s USDT and Circle’s USDC.
Analysts at Citigroup forecast the market could swell to $4tn by 2030. Yet sterling-denominated stablecoins remain nascent, with no significant issuers operating at scale (less than 1% of the global market).
From caution to pragmatism
Bailey’s latest comments mark a subtle but important shift from his Mansion House speech in July, when he insisted stablecoins were not a substitute for commercial bank deposits.
In his latest remarks, he suggested that the financial system “does not have to be organised” in its current form, where money creation is tightly bound to bank lending.
Instead, he floated the possibility of separating money from credit provision, allowing banks, stablecoin issuers and non-bank financial institutions to coexist and share roles.
Such a shift would represent a profound change in the way the UK financial system underpins credit creation. Today, deposits placed in commercial banks are recycled into loans for households and businesses, supporting wider economic activity.
A large-scale adoption of stablecoins, especially if backed only by risk-free assets, could weaken this model, potentially shifting lending functions to non-banks.
Bailey emphasised that any such transition would need careful analysis before moving forward.
Conditions for public trust
The governor was clear that not all stablecoins meet the conditions necessary to function as money in the “real economy”. He outlined three pillars of trust:
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Risk-free reserves – The assets backing stablecoins must be insulated from credit, interest rate, and exchange rate risk. Only then can a coin be considered genuinely stable.
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Protection against operational shocks – Stablecoin issuers must establish deposit insurance-style mechanisms and statutory resolution schemes to safeguard users in the event of insolvency or a successful cyber attack. Holders should be treated as preferred creditors.
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Transparent redemption terms – Conversion between stablecoins and other forms of money should be consistent and direct, not mediated by the opaque practices of unregulated crypto exchanges.
Meeting these requirements would likely add costs for issuers, but Bailey argued they were essential for establishing public confidence.
Global regulatory divergence
The Bank of England’s deliberations come at a time when other jurisdictions are moving faster.
In July, the US Congress passed the Genius Act, laying the groundwork for mainstream adoption of stablecoins in American financial markets. The EU has also advanced its MiCA (Markets in Crypto-Assets) framework.
In contrast, the UK has been criticised for dragging its feet. George Osborne, former chancellor and now an adviser to Coinbase, has warned that Britain risks being “completely left behind”. Reform UK leader Nigel Farage has also urged the BoE to take a more supportive stance.
Bailey’s latest comments appear designed to reposition the Bank as a constructive player in the debate.
He said stablecoins used at scale “enable the comparison and exchange of value and thus support the price system”, placing them firmly within the definition of money rather than speculative crypto assets.
Next steps: consultation and central bank access
Later this year, the Bank of England will launch a consultation paper setting out how it intends to regulate systemically important stablecoins in the UK. The paper will focus on tokens designed for everyday payments and for settlement in tokenised financial markets, rather than those used primarily in crypto trading.
One significant proposal is to grant well-regulated UK stablecoin issuers access to accounts at the Bank of England.
This move would anchor their credibility and reinforce their equivalence to traditional money, while ensuring they remain within the perimeter of central bank oversight.
At the same time, the BoE faces lobbying pressure to abandon its draft proposal to cap holdings at £10,000–£20,000 for individuals and £10mn for corporates — far stricter than limits proposed in the US or EU.
Industry participants warn such restrictions would stifle adoption.
A delicate balancing act
The governor’s article reflects a careful balancing act. On one hand, the Bank wants the UK to capture the benefits of innovation in payments and digital assets. On the other, it remains wary of risks to financial stability and the integrity of money itself.
The central question, Bailey suggested, is one that has preoccupied central bankers for centuries: how to preserve the vital link between money and credit creation.
As the UK edges towards a new stablecoin regime, that question will determine whether these digital tokens evolve from crypto trading tools into fully fledged components of the financial system.
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