Andrew Bailey, the Governor of the Bank of England, urged that stablecoin may lessen the United Kingdom’s dependence on commercial banks, hinting at a possible evolution in the central bank’s approach to digital assets.
FT’s said in Wednesday’s article that the Governor of the Bank said the current financial system runs on fractional reserve banking. In this model, banks hold back just a portion of deposits and lend out the rest, which in turn generates new money through credit growth.
Bailey wrote in Financial Times that, “ Most of the assets backing commercial bank money are not risk-free: they are loans to individuals and to companies,” adding, “ The system does not have to be organised like this.”
Stablecoins are penetrating deeper into traditional banking
Stablecoins are no longer confined to the digital asset space; they are steadily making their way into traditional banking. Initially designed as a tool to stabilize value within crypto markets, they are now being recognized as a practical solution for faster, cheaper, and more transparent transactions. This growing recognition is pushing banks to explore stablecoins as part of their financial infrastructure.
Major institutions are experimenting with stablecoins to settle payments, improve liquidity, and tokenize real-world assets. This integration could reduce reliance on outdated legacy systems, while offering clients more efficient cross-border settlements. By leveraging blockchain technology, stablecoins bring speed and cost-effectiveness to processes that were once slow and expensive.
Regulatory clarity has also played a vital role in this shift. As financial watchdogs begin drafting frameworks for stablecoin use, banks are more confident in exploring their applications. This clarity not only reduces risk but also fosters collaboration between traditional finance and fintech innovators.
Stablecoins are emerging as a bridge between decentralized technologies and conventional banking models. Their ability to merge the efficiency of blockchain with the trust of regulated institutions could mark a turning point in how the global financial system evolves.