Bank of England Governor, Andrew Bailey, has stated that stablecoins must be regulated as inside money before they can function as money. Speaking at the Institute of International Finance, Bailey asserted that stablecoins lacked the "assured value" expected in digital money, which is crucial to underpin financial stability. He defined money as something that is perceived as a payment method or store of value. While the use of stablecoins as payment methods has increased, Bailey argued that they could only "purport to be money at least as a means of payment" if they did not acquire the characteristics of money.
Bailey also referred to crypto as a "highly speculative investment" with no intrinsic value, reiterating his belief that unbacked digital assets could not function as money. He noted that for money to serve as a means of payment, it required stability of value, which was not the case for unbacked crypto. Bailey's speech followed the recent banking crisis triggered by the collapse of Silicon Valley Bank, emphasizing the need to "revisit the protection of inside money," particularly in smaller banks.
Bailey's remarks reflect the Bank of England's skepticism about stablecoins and cryptocurrencies. While digital assets continue to grow in popularity, regulatory authorities have been concerned about the potential risks they pose to financial stability. Bailey's call for stablecoins to be regulated as inside money reflects the need for digital assets to meet the same standards as traditional currencies. However, with the rapid pace of innovation in the digital asset space, it remains to be seen how regulators will adapt their approach to these new technologies.
