Dollar Stablecoin Surge Threatens Financial Stability

Bank of England policymaker Carolyn Wilkins recently spoke about the growth and implications of dollar-backed stablecoins. She noted that approximately $300 billion in stablecoins are now in circulation, a significant increase from less than $5 billion at the start of 2020.

Wilkins emphasized that stablecoins have moved beyond being an experiment within the crypto market and have begun to reshape the global monetary system. She pointed out that private digital money can work at scale but requires specific conditions, including maintaining convertibility at par, ensuring high-quality reserves, providing liquidity during crises, and establishing clear rules for failure.

The risks associated with stablecoins were illustrated by the 2023 collapse of Silicon Valley Bank, when Circle's USDC stablecoin briefly lost its dollar peg after approximately $3.3 billion of its reserves were held at the failed bank.