The Governor of the Bank of England changes stance: acknowledges the flaws of partial reserves, stablecoins can reduce dependence on commercial banks.

The Governor of the Bank of England, Andrew Bailey, recently made a rare positive signal regarding Crypto Assets, indicating that stablecoins could thrive in a financial system where "money and credit are separated," thereby reducing the country's reliance on commercial banks. This not only symbolizes a shift in the Central Bank's attitude towards digital assets but may also become a significant turning point for traditional banking.

( The Governor of the Bank of England warns banks not to issue stablecoins: tokenized deposits take priority, think twice before buying Bitcoin )

Bailey's new argument: currency and credit should be "partially separated"

The Financial Times reported that Bailey pointed out that the current financial system binds "money" and "credit" through the fractional reserve banking system (, where banks only keep a portion of deposits as reserves and lend out the remaining funds, creating new money through credit expansion:

The currency created by commercial banks is not without risk behind its assets; they are mostly loans to individuals or businesses.

He believes that this system does not need to be designed this way and proposes an alternative possibility: "to separate currency deposits from the credit portion, allowing banks to coexist with stablecoins, while non-bank institutions take on a greater lending role."

In the future, it is possible to consider replacing the current framework with a model that combines "narrow banks )narrow banks(" with "non-bank credit sources," which is expected to make the financial structure safer, credit more flexible, and also drop systemic risks.

Although he cautioned that this transition requires careful assessment, it has shown that the bank's attitude towards the future of payment and financial structures is changing.

Clarifying the industry's opposition to stablecoin limit voices: Bailey's focus is different

Before Bailey published the article, British crypto industry groups had strongly criticized the Central Bank's proposed "stablecoin holding limit" policy, arguing that it would lead to high costs and hinder operations, even putting the UK at a disadvantage in the global competition.

Coinbase International Policy Vice President Tom Duff Gordon stated: "No major jurisdiction believes it is necessary to set a holding limit."

)The Bank of England plans to limit individual stablecoin holdings, and the industry criticizes it as "absurd": fearing that it will leave the UK behind globally(

Bailey's new statement symbolizes a shift in the Central Bank's policy direction, and he clarified that his focus on encryption technology is on the "large-scale application of payments and settlements," while the existing Crypto Assets and stablecoin have not yet met the standards.

Is depositing a stablecoin into a Central Bank account considered a form of CBDC?

Secondly, Bailey further argues that stablecoin issuers should at least store a portion of their reserves at the Central Bank to strengthen their currency position. By accessing the Central Bank's real-time clearing system )RTGS(, it can enhance the UK's payment infrastructure system.

Omid Malekan, a professor at the Colombian Business School and a supporter of encryption, believes that this type of stablecoin has, to some extent, also become a "Synthetic Central Bank Digital Currency )Synthetic CBDC(," depending on the percentage of the stablecoin reserves held by the Central Bank and its ability to earn interest:

If the above policies are implemented, the impact on traditional commercial banks will be profound, and this consultation dialogue should cause a shock in the banking sector.

Bailey: Open innovation in stablecoins, but still requires risk protection.

Although the attitude has turned positive, Bailey still emphasizes that the development of stablecoins must have safety and transparency. He believes that stablecoin assets should be defined as "risk-free" and must have insurance mechanisms to prevent operational risks such as hacking attacks, as well as standardized trading terms.

He acknowledged the potential of stablecoins to promote diversified payments: "This innovation in the form of currency is possible, so the claim that I oppose stablecoins is not accurate." With that said, he also left a door open for future payment innovations.

This article discusses the shift in attitude of the Governor of the Bank of England: acknowledging the drawbacks of partial reserves and that stablecoins can reduce dependence on commercial banks. It first appeared in Chain News ABMedia.