Stablecoin Growth Threatens Financial Stability, Warns Bank of England Policymaker

Bank of England policymaker Carolyn Wilkins has given her perspective on dollar-backed stablecoins and their growing influence in global finance. With over $300 billion in circulation, stablecoins are no longer just a crypto-market experiment but a force to be reckoned with.

Wilkins noted that the rapid growth of stablecoins could create new financial-stability risks, particularly if they become substantially larger. She pointed out that stablecoins face familiar challenges such as maintaining convertibility at par, ensuring high-quality reserves, and providing liquidity during crises.

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

Wilkins identified three potential channels through which stablecoins could reshape the global monetary system: making cross-border settlement faster and cheaper, extending access to dollar-linked assets in countries with unstable currencies or restricted access to dollar banking, and increasing demand for U.S. Treasury securities.