The Digital Money Dilemma: England Debates the Future of Stablecoins

In recent months, the House of Lords in the United Kingdom has intensified its investigations into how the British financial system should handle stablecoins. During a recent public session broadcast by Cointelegraph, it became clear that a central concern exists: these cryptocurrencies should primarily be viewed as a means of entry and exit to the crypto market, rather than as a revolutionary transformation of traditional money concepts. The fundamental question now is how England can structure regulation that protects the financial system while allowing for innovation.

Stablecoins as Gateways to the Crypto Market

The Financial Services Regulatory Committee (FSRC) conducted a detailed interrogation with experts on various aspects of stablecoins. Central topics included how these digital currencies compete with traditional banks, their cross-border applications, the risks associated with illicit financial activities, and how they fit under U.S. legislation, particularly the U.S. GENIUS stablecoin law.

Chris Giles, an economics commentator for the Financial Times, presented a pragmatic perspective during the testimonies. According to him, widespread adoption of stablecoins in England faces a significant obstacle: the lack of “legal clarity and definitive regulation” makes it dangerous for ordinary citizens to rely on them as money. Giles argued that while a robust regulatory framework could potentially improve transaction efficiency and reduce operational costs, especially in corporate international transfers, the domestic UK landscape is different. With instant and low-cost payment systems already well established, stablecoins backed by the British pound would hardly cause a significant disruption to England’s banking system.

For Giles, the more realistic role of stablecoins is to serve as “entry and exit bridges” to the crypto universe, a role he described as “notable but not revolutionary.” He also touched on an important economic issue: whether stablecoins should offer yields. For Giles, if they operate solely as a payment technology, there is no theoretical need to generate interest. The British financial system has never been dominated by interest-bearing checking accounts, so the absence of yields would not be a practical problem.

England’s View on Regulation and Financial Protection

Regarding regulatory approach, Giles expressed support for the Bank of England’s methodology of treating stablecoins “like money,” with strict reserve requirements and robust liquidity safeguards. However, he warned of an often underestimated risk: the potential for stablecoins to be used in illicit activities. He emphasized the need for coordinated international supervision of crypto exchanges and more rigorous Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures.

Arthur E. Wilmarth Jr., a U.S. law professor, took a more critical stance, especially regarding the American GENIUS law. According to Wilmarth, this legislation represents a “catastrophic mistake” by allowing non-bank entities to issue dollar-denominated stablecoins. In his view, the safer alternative would be tokenized deposits controlled by traditional financial institutions.

Diverging Paths: Regulatory Strategies in the U.S. and the UK

Wilmarth described current stablecoins as a mechanism of “exploiting regulatory gaps” that allows lightly supervised companies to enter the “money business,” bypassing security structures established for centuries in the banking system. Although he acknowledged that the U.S. has made “several problematic decisions,” he praised the more cautious approach proposed by the Bank of England as superior.

The tension between these two perspectives reflects a broader debate about the role of stablecoins in the global economy. While England seeks to implement strict controls, the U.S. has allowed a more permissive regulatory space. For the UK, the question is not whether stablecoins should exist but how to ensure that, if digital money becomes widespread, it remains under proper oversight and serves financial stability interests, rather than merely acting as a speculative avenue for the crypto market. The debate in the House of Lords demonstrates that the UK is determined to learn from decisions made in other jurisdictions while building its own regulatory path to protect its monetary and financial systems.