Andrew Bailey, the governor of the Bank of England, is sounding the alarm about a scenario that should make any financial regulator lose sleep: a crisis-driven stampede of US stablecoin capital pouring into the UK with no clear redemption backstop.
Bailey, who also chairs the Financial Stability Board, warned that US-issued stablecoins with inadequate redemption mechanisms could flood into jurisdictions like the UK during periods of financial stress. The concern isn’t theoretical. It’s the kind of cross-border contagion risk that central bankers spend their careers trying to prevent.
The redemption problem
Bailey’s specific worry is about what happens when global markets hit turbulence. Investors holding US stablecoins with weak redemption guarantees might rush to convert those holdings into assets denominated in other currencies, or park them in jurisdictions they perceive as safer. The UK, as one of the world’s largest financial centers, sits squarely in the path of those potential capital flows.
The risk isn’t just about the stablecoins themselves. It’s about the knock-on effects. Sudden, large capital flows can distort exchange rates, strain liquidity in domestic markets, and create volatility.
The UK’s own stablecoin playbook
Bailey isn’t just pointing fingers across the Atlantic, though. The Bank of England is actively building a comprehensive regulatory framework for sterling-denominated stablecoins designed to avoid the exact problems he’s flagging with US versions.
The proposed UK framework would create a dual-regulator model. Stablecoins deemed systemically important would be supervised jointly by the Bank of England and the Financial Conduct Authority.
Perhaps the most significant element of the UK plan is this: systemic stablecoin issuers operating in Britain would get access to Bank of England liquidity facilities. That’s the central bank’s way of ensuring that when everyone rushes for the exits, there’s actually money behind the door.
Why this matters beyond the UK
Bailey’s dual role as BoE governor and FSB chair gives these warnings outsized significance. The Financial Stability Board coordinates financial regulation across the G20 economies.
The timing is notable. The US has been moving toward its own stablecoin legislation, with bills like the GENIUS Act working through Congress to establish federal oversight of dollar-denominated stablecoins. But the US approach and the UK approach appear to be diverging in meaningful ways, particularly around the question of what happens during a crisis.
The US stablecoin market dwarfs every other jurisdiction’s. Tether’s USDT and Circle’s USDC collectively represent the vast majority of global stablecoin volume, and both are dollar-denominated. If Bailey is right that these instruments could become vectors for cross-border instability, the implications extend far beyond Britain.