BoE’s Bailey: Stablecoins Need Insurance, Risk‑Free Backing and Broad Convertibility

Bank of England Governor Andrew Bailey said stablecoin issuers should carry insurance to protect against operational risks, including cyberattacks and other disruptions. Writing in an opinion column for the Financial Times, he also argued that these digital tokens ought to be backed by risk-free assets and be readily convertible into other forms of money—not only through crypto exchanges but across the broader financial system. The central bank expects to release a discussion paper soon to solicit views on how to approach these issues.

While many central bankers remain skeptical of stablecoins, Bailey emphasized that he sees genuine potential for innovation and cautioned against rejecting the technology on principle. He challenged the traditional view that deposit-taking and lending must reside within a single banking entity, noting, “The system does not have to be organised like this.” In his view, banks could operate alongside stablecoin issuers and nonbank lenders in a more diverse market structure.

Even so, Bailey reiterated that the growth of such models raises questions about credit creation, concerns he previously flagged in July. Balancing innovation with safeguards—such as robust backing, convertibility, and operational resilience—will be central to the policy debate he intends to kick-start with the forthcoming discussion paper. Article continues …

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