Bank of England Governor Andrew Bailey said he anticipates a contentious debate between U.S. authorities and international regulators over the regulation of stablecoins, a form of cryptocurrency he regards as posing potential risks to financial stability.
Stablecoins generally maintain a fixed peg to the U.S. dollar or another major currency and are promoted as an alternative mechanism for domestic and cross-border payments outside the traditional banking system. Bailey noted that the current U.S. administration under President Donald Trump has been supportive of stablecoins, which are frequently backed by U.S. Treasury bills.
Bailey, who also chairs the Financial Stability Board - the international body tasked with coordinating regulatory responses - reiterated his long-standing scepticism toward cryptocurrencies and highlighted the challenges stablecoins present for regulators trying to ensure stability in payments.
"If we want stablecoins to be part of the architecture of payments globally ... they’re only going to work if we have international standards. Frankly, that, I think, is going to be a coming wrestle with the (U.S.) administration," Bailey said during remarks at a Bank of England-hosted conference on financial imbalances.
He expressed particular concern that some U.S. stablecoins might not be readily convertible into dollars without routing through a cryptocurrency exchange, a limitation that could become acute in times of market stress. Bailey warned that such convertibility constraints could restrict access to dollars during a crisis.
Bailey also outlined a potential cross-border transmission mechanism for instability: if stablecoins gained wide use in cross-border payments, holdings of U.S.-linked stablecoins that are hard to convert could migrate toward jurisdictions that impose more robust obligations ensuring convertibility, including Britain.
"We know what would happen if there was a run on a stablecoin - they’d all turn up here," he said, underlining the risk that flows could concentrate in jurisdictions with stronger convertibility frameworks during episodes of stress.
Bailey's comments underscore the tension between domestic policy approaches that may favour certain stablecoin structures and the international regulatory coordination he says is necessary to make those instruments safe for global payments.