BoE’s Bailey softens on stablecoins, floats BoE account access to cut reliance on commercial banks
Bank of England (BoE) Governor Andrew Bailey has indicated that stablecoins could lessen the United Kingdom’s dependence on commercial banks, hinting at a potentially more receptive approach to digital assets from the central bank. Writing in the Financial Times on Wednesday, Bailey argued that the way money and credit are intertwined today—primarily through fractional reserve banking—is not the only way a modern financial system can function.
In his piece, Bailey revisited the mechanics of fractional reserve banking, in which banks keep only a portion of customer deposits on hand and lend out the remainder, effectively expanding the money supply through credit creation. He underscored that most of the backing for commercial bank money comes from loans to households and businesses, which introduces risk into the system. “Most of the assets backing commercial bank money are not risk-free: they are loans to individuals and to companies,” he wrote. “The system does not have to be organised like this.”
Bailey suggested it may be feasible to, at least in part, separate the concept of money from the provision of credit. In such a reconfigured architecture, banks and stablecoins could operate alongside one another, with non-bank institutions shouldering a larger share of credit intermediation. That said, he emphasized that such a shift would be significant and that policymakers must carefully weigh the trade-offs. “It is important to consider the implications of such a change thoroughly before going ahead,” he cautioned.
Photo: Bank of England headquarters. Source: Wikimedia
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His remarks arrive amid pushback from UK crypto industry groups regarding the BoE’s approach to stablecoins, particularly proposals that would impose caps on individual stablecoin holdings. Critics argue that such limits would be difficult and costly to implement and could undermine the UK’s competitiveness relative to other jurisdictions pursuing digital money and tokenized finance. Tom Duff Gordon, Coinbase’s vice-president of international policy, has argued that “no other major jurisdiction has deemed it necessary to impose caps,” framing the BoE’s plans as out of step with global peers.
Bailey’s latest comments may signal a softening of that stance. He clarified that the central bank’s primary concern is not the existence of stablecoins per se, but whether a stablecoin can be made suitable for widespread use in payments and settlements at scale. By his assessment, today’s stablecoins and cryptocurrencies do not yet meet the standards required for mass adoption in everyday transactions or in clearing and settlement for core financial markets. Nonetheless, his focus on potential large-scale use cases suggests an openness to building a regime under which properly designed stablecoins could operate as money.
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Bailey disclosed that the BoE will soon publish a consultation paper outlining a systemic stablecoin regime for the UK. This framework would apply to stablecoins intended to function as money, whether for day-to-day retail payments or for settling tokenized transactions in critical financial markets. Crucially, he floated the idea that “widely used UK stablecoins should have access to accounts at the [Bank of England] to reinforce their status as money.” In his view, providing stablecoin issuers with central bank accounts could be pivotal to ensuring these instruments are safe, credible, and integrated into the broader monetary system without undermining financial stability.
Granting central bank account access to stablecoins would mark a notable shift in the BoE’s posture and follow Bailey’s comments from mid-July, when he warned against banks issuing their own stablecoins and instead suggested focusing on tokenized bank deposits. Allowing stablecoins to hold accounts at the BoE could be seen as an indirect means of achieving many of the benefits of deposit tokenization, while maintaining tighter oversight and ensuring that the assets backing those tokens are effectively risk-free.
Despite his increasingly open stance, Bailey stressed that stablecoins must evolve before they can be trusted as money at scale. He pointed to several design and risk-management features that would require rigorous scrutiny. Among them: ensuring that backing assets are genuinely risk-free, instituting robust insurance or safeguards against operational failures and hacks, and establishing clear, standardized terms of exchange and redemption. These elements, he argued, are essential to preserving confidence and ensuring that stablecoins do not introduce new vulnerabilities into the financial system.
Bailey also reiterated that innovation in money should not be dismissed. “It should also be possible to have innovation in the form of money,” he said, adding that it “would therefore be wrong to be against stablecoins.” Rather than rejecting them outright, he sees potential for stablecoins to drive improvements in payments—speeding settlement, reducing costs, and enabling new forms of financial market infrastructure—provided the appropriate guardrails are in place.
The BoE’s evolving thinking comes as policymakers globally weigh how best to regulate stablecoins and the tokenization of financial assets. The UK has sought to position itself as a hub for digital finance, balancing support for innovation with efforts to protect consumers and preserve stability. The planned consultation on a systemic stablecoin regime will likely address key questions around reserve composition, liquidity, redemption rights, governance, operational resilience, and the conditions under which issuers could access central bank facilities.
Industry participants are likely to scrutinize how the BoE defines “widely used” stablecoins and what level of oversight and compliance would be required for central bank account access. They will also be watching closely to see whether any form of usage caps remains under consideration, and how the proposed regime aligns with approaches in the EU, US, and other major jurisdictions. For their part, UK crypto and fintech groups have warned that overly restrictive measures could push innovation offshore, while policymakers are wary of repeating past mistakes that allowed risks to build in the shadows of the financial system.
Bailey’s intervention underscores the broader policy challenge: updating the monetary and payments architecture for a digital era without sacrificing safety. By exploring ways to separate money from credit provision, offering central bank infrastructure to qualifying stablecoins, and insisting on strong protections, the BoE is sketching a pathway that could legitimize stablecoins as a form of money—if, and only if, they meet demanding standards. For now, Bailey’s message is clear: stablecoins are not yet ready for mass adoption, but with the right structure and oversight, they could help modernize the UK’s financial system. Magazine: UK’s Orwellian AI murder prediction system, will AI take your job? AI Eye
