The Bank of England is preparing to publish a consultation paper on a systemic stablecoin regime, focusing on stablecoins used for payments and financial market settlement, with plans to allow widely used stablecoins access to Bank accounts to reinforce their role as money.

Bank of England Governor Bailey recognizes the potential of stablecoins if properly regulated, despite his skepticism of cryptocurrencies, and has clarified that stablecoins will not replace traditional bank money but serve a complementary role.

Bailey emphasized the importance of carefully considering the implications of integrating stablecoins into the financial system before moving forward with implementation.

The increasing popularity of stablecoins, partly driven by the U.S. GENIUS Act, has heightened the urgency for establishing comprehensive regulatory frameworks to ensure stability and safety.

Bailey highlighted that stablecoins should be backed by risk-free assets, include insurance against operational risks like hacks, and meet standardized terms of exchange to promote stability and trust.

While industry concerns have been raised about proposed caps and backing asset criteria for stablecoins, Bailey stressed the necessity of insured, risk-free backing assets to ensure stability and foster confidence.

Bailey's remarks come in response to criticism from UK cryptocurrency industry groups, which argue that caps on stablecoin holdings could hinder innovation and put the UK at a competitive disadvantage.