Crypto Quill

Andrew Bailey, Governor of the Bank of England, has issued a clear warning—any move toward a digital pound must not come at the expense of commercial banks. Speaking in London, he emphasized that while digital payments are evolving rapidly, financial stability remains the priority. His remarks come as central banks worldwide weigh the benefits and risks of central bank digital currencies (CBDCs).

BoE Governor Stresses Financial Stability Over Speculation

Bailey didn’t mince words. While the UK continues to explore the feasibility of a digital pound, he made it clear that commercial banks must remain at the core of financial intermediation.

“There is no rationale for standing facilities for non-banks as they do not create money,” Bailey stated, dismissing the idea of giving non-bank financial institutions (NBFIs) direct access to central bank liquidity. He warned that introducing a digital pound without the right safeguards could disrupt traditional banking, leading to unintended economic consequences.

One key concern? A shift in customer deposits from commercial banks to the Bank of England itself. If individuals and businesses flock to the digital pound in times of crisis, traditional banks could face liquidity shortages, weakening their ability to lend.

Treading Carefully: BoE’s Approach to Digital Currency

Bailey’s speech at the University of Chicago Booth School of Business in London highlighted the BoE’s cautious approach to CBDCs. Unlike some other central banks pushing ahead with digital currency plans, the UK’s stance remains measured.

• The BoE is committed to maintaining monetary stability, ensuring a digital pound does not disrupt liquidity transmission.
• Any move toward a digital currency must be based on clear economic justification, not speculation.
• Commercial banks remain the backbone of the financial system, and any changes must support, not undermine, their role.

A “Digital Pound Lab” is set to launch later this year, allowing policymakers and financial institutions to assess potential use cases. However, Bailey emphasized that a full rollout would require significant scrutiny and public confidence.

Trump’s CBDC Ban: A Warning for the UK?

Bailey’s speech comes just days after U.S. President Donald Trump signed an executive order banning federal agencies from pursuing CBDCs. The move signals a growing divide in global attitudes toward digital currencies.

While some governments, including China, have aggressively pushed forward with CBDCs, the U.S. decision reflects concerns about government overreach, surveillance, and the potential erosion of financial privacy.

Could the UK follow suit? Not necessarily. While Bailey’s stance is cautious, he has not ruled out a digital pound entirely. Instead, his focus is on ensuring that innovation does not destabilize the financial system—a message that seems to contrast with Trump’s outright rejection of CBDCs.

Bitcoin, Stablecoins, and the Future of Payments

Bailey also took the opportunity to address cryptocurrencies, making his stance crystal clear.

• Bitcoin (BTC) remains a speculative asset with no intrinsic monetary function, according to the BoE Governor.
• Stablecoins, however, could have a future—but only if they meet stringent regulatory standards.

“I think we will have to set a high bar there because the expectations are that people using things for payments are appropriately set like money,” Bailey stated, signaling that stablecoins will face tough scrutiny before gaining widespread adoption.

His remarks reflect the broader regulatory push in the UK to bring crypto-assets under tighter control. While stablecoins may have a role in the payments ecosystem, the BoE is unlikely to give them a free pass without strict oversight.

The Road Ahead: Balancing Innovation and Stability

The Bank of England’s position is clear: a digital pound is not off the table, but it must be introduced carefully, without jeopardizing the role of commercial banks.

At a time when fintech innovation is reshaping financial services, central banks must strike a delicate balance. Bailey’s speech suggests that the UK will prioritize financial stability over rapid adoption, ensuring that any future CBDC rollout is both measured and justified.

For now, the digital pound remains an idea rather than a reality. But as global attitudes toward CBDCs shift, the BoE’s careful approach will be watched closely.