Is the Bank of England Right to Fear Big Bank Stablecoins?

In recent months,Bank of England stablecoin have surged to the forefront of the financial innovation race.Once the domain of crypto-native firms,these digital assets designed to maintain a 1:1 peg with fiat currencies like the U.S dollar or British pound are now being embraced by traditional banks. But as big banks dive in not everyone is cheering.

In a warning issued earlier this July senior figures at the Bank of England (BoE) raised concerns about the increasing role of commercial banks issuing their own stablecoins, citing potential risks to financial stability and monetary control.This cautious stance has sparked debate:Is the BoE being prudent or overly protective?

What Are Stablecoins and Why Are Big Banks Interested?

Stablecoins are digital tokens pegged to stable assets,typically government issued currencies. They offer the speed and programmability of crypto while maintaining price stability,making them attractive for everything from payments to cross-border transfers and decentralized finance (DeFi).

Initially dominated by firms like Tether and Circle (USDC) the stablecoin space is now drawing interest from traditional financial institutions:

• JPMorgan’s JPM Coin has expanded into corporate payments and blockchain settlements.
• HSBC recently announced trials for tokenized deposits backed by pound sterling.
• Barclays and Citi are exploring distributed ledger solutions for real time clearing and settlement using fiat pegged tokens.

The entry of regulated banks brings credibility to stablecoins but also raises questions about who controls the money supply.

Why Is the Bank of England Concerned?

In a speech delivered in early July 2025,Sir Dave Ramsden,Deputy Governor of the BoE,echoed concerns previously voiced by regulators worldwide.He warned that allowing private banks to issue stablecoins at scale could fragment the monetary system and undermine the role of central bank money.

Here are the BoE’s key concerns:

1. Monetary Sovereignty at Risk
   If stablecoins become dominant,central banks may lose influence over money creation and interest rate transmission tools critical for economic stability.
2. Consumer Protection Gaps
   Unlike fiat in a bank account,stablecoin holdings may lack formal protections such as deposit insurance,particularly in crisis scenarios.
3. Operational and Liquidity Risks
   Rapid outflows from bank issued stablecoins during market stress could destabilize banks’balance sheets and cause broader financial shocks.
4. Payment System Fragmentation
   Multiple co existing stablecoins could reduce the interoperability and efficiency of national payment networks.

Are These Concerns Valid?

Why the BoE Might Be Right

• Historic Parallels:The 19th century free banking era when private banks issued their own notes ended in chaos and bank runs.
• Trust in the System:Central banks offer stability and public trust that private institutions may not be able to replicate at scale.
• Lack of Standardization: Without clear and uniform rules some stablecoin issuers might cut corners,creating systemic vulnerabilities.

 Why Critics Say the BoE Is Overreacting

• Banks Are Already Regulated:Big banks are subject to stringent oversight,capital requirements and risk audits.
• Innovation vs. Protectionism:Over regulation could stifle innovation and drive companies to more crypto friendly jurisdictions.
• Consumer Demand Is Growing:Market appetite for low-cost, programmable money is undeniable and private banks are positioned to deliver.

How Other Countries Are Handling Stablecoin Expansion

The BoE isn’t alone in raising concerns but its approach is more conservative compared to peers:

• European Union:Under MiCA (Markets in Crypto-Assets Regulation) stablecoins are permitted under strict licensing rules.Major European banks are already piloting euro pegged digital assets.
  United States:The Federal Reserve proposed requiring stablecoin issuers to maintain high quality liquid reserves and submit to regulatory audits.
• Japan & Singapore:These nations have introduced frameworks allowing stablecoins issued by licensed institutions,encouraging both innovation and safeguards.

The UK while advancing a Central Bank Digital Currency (CBDC) dubbed “Britcoin”seems to be lagging behind in enabling private sector innovation under regulatory clarity.

What’s Next for Stablecoins in the UK?

The UK government has pledged to become a global crypto hub but the BoE’s latest statements highlight a growing internal divide.On one side is the push for technological leadership on the other the fear of losing control over the monetary system.

With the Financial Services and Markets Act (FSMA) now recognizing stablecoins as a valid form of payment all eyes are on how the BoE and Treasury will implement final regulations before the end of 2025.

Conclusion:Striking the Right Balance

The Bank of England’s caution is rooted in valid historical and systemic concerns.However the solution may not be to block innovation but to regulate it effectively.Allowing big banks to issue stablecoins under robust oversight could provide the benefits of efficiency and speed while protecting the integrity of the financial system.