Introduction to Stablecoins
Stablecoins have been a topic of discussion in recent speeches by UK Chancellor Rachel Reeves and the Governor of the Bank of England, Andrew Bailey. Both speeches, given at Mansion House, highlighted the potential of stablecoins in the future of payments.
The Governor’s Perspective
The Governor emphasized the "urgent need" for innovation in payments and the opportunities it presents. He believes that stablecoins may have a role to play, but not as a substitute for commercial bank money. The key reason for this is that bank deposits enable banks to advance credit. In another speech, he urged banks to avoid issuing stablecoins, citing the same motivation. He also stated that "our job will be to ensure that those stablecoins that purport to be money are safe."
Global Trade and Tariffs
Other parts of the Governor’s speech focused on global trade and tariffs. He mentioned the need for the US to explain how it can regard its internal imbalance as sustainable and its external imbalance as not so. Although the Governor didn’t mention it, there’s a stablecoin angle here as well, relating to the management of US debt. The US government is aware of its high debt levels and wants to lower interest rates to make it more affordable to service.
The US Perspective
The US government wants to lower interest rates to make its debt more affordable. Leaning into stablecoins achieves this in two ways: by increasing demand for Treasury bills, which lowers short-term rates on the bills, and by reducing the role of the Federal Reserve. President Trump views the Federal Reserve as sustaining interest rates that are too high. The role reduction is twofold: providing the Federal Reserve with a limited role in supervising stablecoins via the GENIUS Act and moving money out of the banking system.
The Chancellor’s Comments
Chancellor Rachel Reeves’s comments on digital currencies and digital assets were brief. She acknowledged the presence of SEC Commissioner Hester Peirce and noted the digital collaborations between the two countries. For example, the US will participate in the UK’s Digital Securities Sandbox. The Chancellor stated that she will drive forward developments in blockchain technology, including tokenized securities and stablecoins, and an ambitious design for a new digital gilt instrument.
Conclusion
In conclusion, stablecoins have been a topic of discussion in recent speeches by UK Chancellor Rachel Reeves and the Governor of the Bank of England, Andrew Bailey. While the Governor believes that stablecoins may have a role to play, he doesn’t see them as a substitute for commercial bank money. The US government, on the other hand, sees stablecoins as a way to lower interest rates and make its debt more affordable. The Chancellor is driving forward developments in blockchain technology, including stablecoins, to keep the UK at the forefront of digital asset innovation.
