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The Bank of England has issued a stern warning about unregulated stablecoins, stressing that the rapid growth of privately issued digital currencies could threaten financial stability if left unchecked.
Speaking at a financial policy forum in London, Governor Andrew Bailey cautioned that while stablecoins have potential to improve payments, those not backed by transparent reserves or strong regulation could undermine public confidence in the financial system.
The remarks come as the UK continues its push to become a global hub for digital assets, even as regulators tighten oversight on crypto activity. Bailey’s statement underscores growing concern that the expansion of stablecoins especially those operating outside traditional banking frameworks could create risks similar to shadow banking.
According to the Bank of England, the key issue is trust. Without strict supervision, consumers might treat unregulated stablecoins as equivalent to bank deposits, unaware that these tokens may not always hold stable value. The governor emphasized that stability claims must be backed by verifiable assets and clear redemption rights.
This position aligns with broader moves across major economies. The United States, the European Union, and Japan have all introduced or proposed frameworks aimed at defining how stablecoins should operate within regulated financial systems. The UK is expected to follow a similar path through the upcoming Financial Services and Markets Act.
Industry players, however, warn that overregulation could stifle innovation. They argue that stablecoins when managed responsibly, enable faster, cheaper, and more inclusive financial services. Startups building payment systems on blockchain rails see them as critical to the next phase of global finance.
The tension between innovation and oversight continues to shape policy debates across financial centers. For the Bank of England, the message is clear: innovation is welcome, but not at the expense of safety.
As the global race to define digital money intensifies, the UK’s regulatory direction could influence how other nations approach stablecoin governance. The challenge lies in balancing technological advancement with the enduring need for public trust in money.
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