Yesterday both the UK Chancellor Rachel Reeves and the Governor of the Bank of England Andrew Bailey gave speeches at Mansion House that mentioned stablecoins. The Governor highlighted the “urgent need” for innovation in payments and the opportunity this presents. He said, “There may well be a role for stablecoins going forward, but I don’t see them as a substitute for commercial bank money.”
The key reason is that bank deposits enable banks to advance credit. In another recent speech, he urged banks to avoid issuing stablecoins, with the same motivation. He added that “our job will be to ensure that those stablecoins that purport to be money are safe.” As he’s stated a few times before, he remains to be convinced about the need for a retail central bank digital currency (CBDC).
Other parts of his speech focused on global trade and tariffs, including comments intended as “constructive challenge and engagement”. He said that the “US does need to explain how it can regard its internal imbalance as sustainable and its external imbalance as not so.” Although the Governor didn’t mention it, there’s a stablecoin angle here as well, relating to the management of US debt.
The US government is acutely aware of its current high debt levels, which is why it wants to lower interest rates to make it more affordable to service. Leaning into stablecoins achieves this in two ways, one direct and one indirect. It increases demand for Treasury bills, which lowers short term rates on the bills. Secondly, it reduces the role of the Federal Reserve, which President Trump views as sustaining interest rates that he considers too high. That role reduction is twofold, by providing the Federal Reserve with a rather limited role in supervising stablecoins via the GENIUS Act and longer term, by moving money out of the banking system.
Circling back to the speeches, Chancellor Rachel Reeves’s comments on digital currencies and digital assets were short and sweet. She acknowledged the presence of SEC Commissioner Hester Peirce, noting the digital collaborations between the two countries. For example, the US will participate in the UK’s Digital Securities Sandbox.
“I will drive forward developments in blockchain technology…including tokenised securities and stablecoins…and an ambitious design for a new digital gilt instrument…so that UK financial services can be at the forefront of digital asset innovation,” said the Chancellor.