{"id":16572,"date":"2025-10-01T18:58:58","date_gmt":"2025-10-01T16:58:58","guid":{"rendered":"https:\/\/wsj-crypto.com\/?p=16572"},"modified":"2025-10-01T18:58:58","modified_gmt":"2025-10-01T16:58:58","slug":"uk-central-bank-explores-stablecoins-to-diminish-bank-dependence","status":"publish","type":"post","link":"https:\/\/wsj-crypto.com\/index.php\/2025\/10\/01\/uk-central-bank-explores-stablecoins-to-diminish-bank-dependence\/","title":{"rendered":"UK Central Bank Explores Stablecoins to Diminish Bank Dependence"},"content":{"rendered":"

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Bank of England (BoE) Chief Andrew Bailey indicated that stablecoins might diminish the United Kingdom\u2019s dependence on commercial banks, suggesting a possible alteration in the central bank\u2019s perspective towards digital assets.<\/p>\n

In a Wednesday piece<\/a> in the Financial Times, Bailey mentioned that the existing financial framework merges money and credit establishment through fractional reserve banking, wherein banks maintain a segment of deposits while loaning out the remainder. Fractional reserve banking<\/a> is a structure in which banks keep only a portion of client deposits in reserve and extend the rest as loans, thus generating new currency via credit expansion.<\/p>\n

\u201cThe majority of the assets supporting commercial bank currency are not devoid of risk: they comprise loans to individuals and corporations,\u201d Bailey articulated in the FT. \u201cThe system need not be arranged in this way.\u201d<\/p>\n

Bailey expressed it\u2019s feasible to \u201cpartially separate money from credit provision.\u201d Within such a framework, banks and stablecoins<\/a> would exist together, while non-banks would undertake a larger share of the credit provision function. Nonetheless, Bailey warned that \u201cit is crucial to thoroughly examine the consequences of such a transition before proceeding.\u201d<\/p>\n

Bank of England headquarters. Source: <\/em>Wikimedia<\/em><\/a><\/figcaption><\/figure>\n

Related: <\/strong><\/em>UK Finance tests tokenized sterling deposits with six leading banks<\/strong><\/em><\/a><\/p>\n

Industry resistance to stablecoin restrictions<\/h2>\n

Bailey\u2019s remarks come after pushback from the Bank of England\u2019s position on stablecoins<\/a> by cryptocurrency industry advocacy organizations based in the UK. The entities objected to a proposal by the BoE that would impose individual limits on stablecoin holdings.<\/p>\n

As per industry representatives, enforcing the cap would be difficult and expensive, possibly leaving the UK behind other regions in the stablecoin sector. Tom Duff Gordon, vice-president of international policy at Coinbase, stated that \u201cno other significant jurisdiction has considered it necessary to apply caps.\u201d<\/p>\n

Nonetheless, Bailey\u2019s statements might hint at a shift in direction. He made it clear that his emphasis is on the widespread implementation of stablecoins for transactions and settlements. He asserted that current stablecoins and cryptocurrencies do not yet meet the necessary criteria.<\/p>\n

Related: <\/strong><\/em>UK to bolster partnerships with US on cryptocurrency issues: Report<\/strong><\/em><\/a><\/p>\n

Stablecoins to hold Bank of England accounts<\/h2>\n

In his FT commentary, Bailey noted that the bank plans to release a consultation document concerning the UK\u2019s systemic stablecoin framework in the forthcoming months. This new structure would pertain to stablecoins meant for utilization as currency, as he elucidates, \u201cfor routine transactions or for settling tokenized core financial markets.\u201d<\/p>\n

He went on to emphasize that \u201cwidely utilized UK stablecoins should obtain access to accounts at the [Bank of England] to reinforce their identity as currency.\u201d This action, Bailey clarified, is essential for establishing a framework that enables the UK to harness the advantages of stablecoins while preserving financial stability.<\/p>\n

The statements follow Bailey\u2019s caution regarding banks issuing stablecoins<\/a> in mid-July, expressing that the BoE ought to prioritize the tokenization of deposits instead. Ensuring that stablecoins possess accounts at the central bank seems to be an indirect method for the BoE to tokenize its deposits.<\/p>\n

Stablecoins must progress<\/h2>\n

Despite his receptiveness towards stablecoins, Bailey remarked that certain characteristics would \u201cnecessitate examination\u201d and that the banking assets should be devoid of risk. Additionally, he proposed that stablecoins need protection against operational hazards, such as breaches, as well as standardized exchange conditions.<\/p>\n

He stated that \u201cit should also be plausible to foster innovation in the realm of money\u201d and consequently \u201cit would therefore be incorrect to oppose stablecoins.\u201d Rather, he acknowledges their \u201cpotential in propelling innovation in payment systems.\u201d<\/p>\n

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