A split is forming between how America and England are handling digital currency rules. Bank of England Governor Andrew Bailey has issued strong warnings against private companies issuing stablecoins, putting him directly at odds with the Trump administration’s push to make these digital dollars a key part of American economic strategy.

Bailey’s concerns go beyond simple regulatory disagreements. As the new chairman of the Financial Stability Board, he now has real power to shape international rules around digital currencies. His warnings come as the $264 billion stablecoin market continues growing rapidly, with 99% of all stablecoins tied to the US dollar.

Bailey Raises Alarm About Banking System Risks

In a recent interview with The Sunday Times, Bailey warned that stablecoins could “destabilize the entire financial system” and cause governments to lose control over their currencies. His main worry centers on how stablecoins might drain money from traditional banks.

“If stablecoins take money out of the banking system, banks have less capacity to lend,” Bailey explained. This concern reflects a deeper fear that private digital currencies could undermine the traditional banking system that central banks carefully regulate.

Bailey’s solution involves what he calls “tokenized deposits” rather than private stablecoins. He would prefer banks to “go down the tokenized deposit streets and say, how do we digitize our money, particularly in payments.” This approach would keep digital payments within the existing banking framework rather than creating parallel systems. The timing of Bailey’s leadership role at the FSB gives extra weight to his warnings. His three-year term began in July 2025, positioning him to influence global stablecoin standards just as the market hits record growth.

Trump Administration Sees Stablecoins as Economic Weapons

While Bailey warns about risks, the Trump administration has embraced stablecoins as strategic tools for maintaining dollar dominance worldwide. Treasury Secretary Scott Bessent argues that stablecoins can “reinforce dollar supremacy” and help ensure the dollar remains the global reserve currency.

The economic logic behind this strategy is straightforward. Stablecoin companies back their digital tokens with cash and short-term Treasury bills. Bessent projects that stablecoins could become “one of the largest buyers of U.S. treasuries”, potentially generating $2-3 trillion in demand for US government debt.

This massive demand could help reduce government borrowing costs and support the national debt. More importantly for American policymakers, it would spread dollar usage globally through digital channels that don’t require traditional banking infrastructure.

Federal Reserve Chair Jerome Powell has shifted from skeptic to supporter of this approach. Powell now calls stablecoin regulation “a good idea”, a major change from his 2021 position that digital dollars would make stablecoins unnecessary.

The administration’s comprehensive strategy includes the GENIUS Act, which passed the Senate in June 2025 with a 68-30 vote. This legislation creates federal licensing for stablecoin issuers while requiring full reserve backing, giving the industry the regulatory clarity it has long sought. Traditional US banks will be major beneficiaries of much of the Trump administration’s legislative agenda, although most are currently ill prepared the move on the opportunity presented. 

Europeans Fear Digital Dollar Takeover

European officials view America’s stablecoin push with growing alarm. ECB President Christine Lagarde has previously warned that stablecoins “risk undermining our capacity to conduct monetary policy” and could lead to the “privatization of money.”

The threat European leaders see is real. ECB Chief Economist Philip Lane explains that if dollar stablecoins gain traction in domestic transactions, they could “anchor Europe’s payment system to the U.S. currency”, reducing the euro’s role in European commerce.

French central bank governor François Villeroy de Galhau has been even more direct, warning that US crypto support could “sow the seeds of future upheavals”. His concerns reflect broader European fears about American tech dominance extending into monetary systems.

Europe’s regulatory response through the Markets in Crypto-Assets (MiCA) regulation shows coordinated resistance to dollar-dominated stablecoins. MiCA’s strict limits on non-EU currency stablecoins, including caps on daily transactions and requirements for EU bank reserves, represent defensive measures against digital dollarization.

The ECB has accelerated development of a digital euro as Europe’s strategic response to American stablecoin dominance. Officials frame the digital euro as essential for maintaining European control over payments and reducing reliance on foreign providers.

Market Numbers Show Why This Matters

The stablecoin market’s explosive growth explains why regulators take these debates seriously. With approximately $250 billion in total value and $32 trillion in 2024 transactions, stablecoins have moved far beyond experimental technology.

Tether commands about 62% of the market at roughly $150 billion, while USD Coin holds approximately 25% at about $61 billion. Both companies are now among the top 18 holders of US debt, demonstrating how private digital currency issuers have become significant players in government finance.

Cross-border payments show particularly strong growth. Stablecoins now represent 15% of global retail cross-border payments, with projections reaching 20% within five years. These numbers explain why traditional banks are starting to view stablecoins as competitive threats rather than curiosities.

The adoption patterns in emerging markets reveal stablecoins’ role as digital dollarization tools. Argentina reports 61.8% of crypto transactions are stablecoin-based, while Turkey uses stablecoins for 3.7% of GDP in purchases. These patterns show how regulatory decisions in major economies directly impact monetary sovereignty in smaller countries.

Global Rules Fragment Along Political Lines

The regulatory response to stablecoins reveals deep disagreements about digital asset policy. While the United States advances comprehensive federal legislation, the European Union implements restrictive measures that prioritize monetary sovereignty over innovation.

Asia-Pacific regions show more balanced approaches. Singapore implemented comprehensive frameworks in August 2023, and Hong Kong passed stablecoin legislation in 2024. These jurisdictions attempt to capture innovation benefits while managing risks.

Middle Eastern regulators demonstrate growing sophistication. The UAE’s Payment Token Services Regulation launched in August 2024, and the first dirham-pegged stablecoin (AE Coin) began operating in January 2025. These developments suggest regional powers are building independent approaches rather than following US or European models.

Central bank positions reflect broader geopolitical tensions. The Bank for International Settlements withdrew from the mBridge CBDC project due to sanctions concerns, showing how digital currency policy intersects with international relations.

The regulatory divide over stablecoins represents more than technical disagreement about digital assets. It reflects fundamental tensions about monetary sovereignty, geopolitical competition, and the future of international finance. The outcome will shape global financial architecture for decades, determining whether stablecoins become tools of American economic power or sources of international monetary cooperation.

 

---

Filed under: Bitcoin - @ July 14, 2025 8:22 am