The Bank of England’s Financial Policy Committee (FPC) has raised concerns about stablecoins in its April 2025 report, highlighting the risks posed by poor oversight and inadequate asset backing to UK financial stability. The committee emphasized the importance of developing regulatory regimes for systemic and non-systemic stablecoins to ensure that they can meet redemption requests reliably and maintain parity in volatile market conditions. The quality of assets backing stablecoins, particularly sterling-denominated tokens issued offshore, is a central concern, as these coins could trigger fire sales and affect core financial markets in the UK during times of market strain.
Another concern highlighted by the FPC is the growing use of stablecoins denominated in foreign currencies, such as US dollar-backed tokens, which could lead to “currency substitution” in domestic economies. While adoption of foreign stablecoins remains limited for now, greater use by households and SMEs for cross-border retail payments could increase macro-financial vulnerabilities. On the wholesale side, settlement of transactions outside of central bank money could increase counterparty credit risk and reduce central banks’ ability to manage liquidity during stress events.
The UK is joining other jurisdictions in developing tailored regulations for stablecoins, supporting global efforts to set standards for crypto markets and stablecoins. The FPC will continue to monitor the size, usage, and interconnectedness of the stablecoin sector with the broader financial system, which is expected to grow. While the committee does not see an immediate threat from stablecoins, it emphasizes the importance of proactive regulatory action to mitigate future risks as adoption increases.
The FPC’s next steps will focus on ensuring that stablecoins, particularly those used in payments, can operate safely without undermining monetary sovereignty or financial resilience. Coordination with other regulatory bodies and monitoring of the stablecoin sector will be key in addressing potential risks associated with stablecoin adoption. The committee’s warnings about asset quality, foreign denomination, and settlement risks associated with stablecoins highlight the need for robust regulatory frameworks to safeguard financial stability in the face of evolving digital asset trends.
