BoE Head Warns of Emerging Stablecoin-Related Risks

England’s central bank chief reportedly wants increased oversight into stablecoin and private finance risks.

Bank of England Governor Andrew Bailey, in a letter to the Group of 20 nations as chair of the Financial Stability Board, has pledged an upgrade to make the board’s surveillance “more flexible and quicker to recognise, and respond to, emerging vulnerabilities.”

“Whether it is the rise of private finance, the implications of geopolitical tensions, or the increasing role of stablecoins for payment and settlement purposes, our ability to detect and address emerging risks is critical,” Bailey wrote in advance of this week’s G20 meetings, per a report Monday (Oct. 13) from Bloomberg News.

As that report noted, the use of stablecoins — a type of digital currency pegged to traditional assets such as the dollar — has seen rapid growth recently. This growth has been particularly strong in the U.S, with some analysts projecting a $2 trillion stablecoin market.

Advocates point to their potential for transforming the payments system, while others caution they could endanger the financial system.

The FSB, meanwhile, is pushing to prohibit stablecoins issued jointly in the European Union and outside jurisdictions out of worries for potential risks moving across borders.

“Gaps remain in addressing financial stability risks and few have finalised regulatory frameworks for global stablecoin arrangements,” Bailey wrote, citing the potential for “regulatory arbitrage.”

As covered here last week, the stablecoin market has grown 42% this year and now exceeds $300 billion in value. Underlining its day-by-day growth, Citi Ventures last week invested in stablecoin infrastructure platform BVNK. The day before that announcement, the Bank of North Dakota, a state-owned bank, teamed with Fiserv to introduce a stablecoin.

JPMorgan Chase, meanwhile, has claimed that rising adoption of the tokens could increase the demand for dollars by as much as $1.4 trillion by 2027.

“However there is one association that stablecoins still share with the rest of the broader crypto landscape: their ongoing entanglement in financial fraud and crime,” PYMNTS wrote, citing a report from the Financial Action Task Force (FATF) which found that “most on-chain illicit activity now involves stablecoins.”

Against this backdrop, PYMNTS added, the U.S. Treasury has issued a request for comment on how to deal with the crypto landscape’s risks for regulated financial institutions, especially under the new GENIUS Act.