Andrew Bailey, Governor of the Bank of England, is warning that US-issued stablecoins with inadequate redemption mechanisms could trigger a destabilizing capital surge into the UK during a global financial crisis.
Bailey, who also chairs the Financial Stability Board, outlined the risk: when markets turn turbulent, investors holding dollar-pegged stablecoins with uncertain redemption may rush to convert holdings into other currencies or park assets in safer jurisdictions like the UK.
The result isn't just a stablecoin problem. Sudden, large cross-border flows can distort exchange rates, strain liquidity, and amplify volatility in domestic markets.
But Bailey isn't only pointing abroad. The Bank of England is building its own regulatory framework for sterling-denominated stablecoins, including a dual-regulator model where systemically important issuers are jointly supervised by the BoE and the Financial Conduct Authority.
The most critical feature: systemic stablecoin issuers in the UK would gain access to BoE liquidity facilities-a central bank backstop designed to ensure orderly redemptions during a crisis.
The timing is notable. The US is advancing its own stablecoin legislation, including the GENIUS Act, but Bailey's dual role at the FSB underscores a transatlantic divergence on crisis preparedness.