Andrew Bailey, the Governor of the Bank of England, has issued a warning to the world’s largest banks against issuing their own stablecoins, setting up a potential regulatory and ideological clash with the Trump administration in the United States, which has been actively encouraging stablecoin adoption.
In a recent interview, Bailey said he would much rather see the banking sector focus on tokenized deposits, digital versions of traditional bank deposits, than on stablecoins, which are privately issued digital tokens typically pegged to a fiat currency like the US dollar or British pound.
His concern, he said, is that stablecoins could take away funds from the traditional banking system, potentially disrupting lending and weakening financial stability.
“It would also be ‘sensible’ for the UK to move towards digitizing deposits rather than issuing their own central bank digital currencies as a response to private sector stablecoins,” Bailey said.
The comments come at a time when Washington is moving in the opposite direction. Under President Donald Trump, the US is about to approve legislation that supports commercial bank issuance of stablecoins, setting up a regulatory framework for dollar-pegged digital assets.
It’s also important to note that USD1, the Trump-linked World Liberty Financial stablecoin, already commands a market capitalization of $2.2 billion.
UK’s caution vs US endorsement
Bailey’s intervention highlights the widening gap in policy approaches between the UK and the US. While American regulators have moved to legitimize stablecoins — even allowing banks to issue them under certain conditions — the UK has taken a more cautious stance, with Bailey insisting that stablecoins should be treated with the same regulatory rigor as traditional banks.
While doubling as the new Chair of the Financial Stability Board (FSB), the international body tasked with monitoring systemic risk, Bailey has pushed for global coordination on the issue. He warned that the widespread adoption of stablecoins could trigger fire sales of underlying reserve assets in the event of a crisis, raising the specter of a new kind of bank run.
Digital pound on hold, tokenization preferred
In a departure from many of his global peers, Bailey also signaled a cooling-off toward launching a central bank digital currency (CBDC), sometimes referred to as a “digital pound.” He suggested the UK might achieve similar outcomes by encouraging commercial banks to digitize deposits instead.
While the Bank of England has conducted extensive research into a potential CBDC, Bailey’s latest remarks suggest the UK is in no hurry to issue one, especially as it weighs privacy, scalability, and implications for retail banking.
This position contrasts with the more aggressive stance of the European Central Bank, which is continuing with pilots for a digital euro, and the People’s Bank of China, which has already rolled out its digital yuan in several provinces.
Bailey said, “I would much rather [banks] go down the tokenized deposit streets and say, how do we digitize our money, particularly in payments.”
He also noted that the US is going towards stablecoins, adding, “The European Central Bank is going towards central bank digital currency. Neither of them is going towards tokenizing deposits.”
The debate over stablecoins comes as trust in digital finance is at a crossroads. A growing number of financial institutions are experimenting with blockchain-based solutions, while regulators scramble to ensure systemic protections are not eroded in the process.
If stablecoins continue to gain traction in the US under a lighter regulatory regime, UK policymakers may find themselves under pressure to either match that pace or double down on stricter oversight. For now, Bailey is making it clear that the UK will not follow blindly.
