During an event on Friday, Bank of England Governor Andrew Bailey expressed concerns about stablecoins, especially the potential impact on the UK if there’s a stablecoin run. The European Central Bank and European members of parliament have raised a related concern. Where a stablecoin operates under a common brand across multiple jurisdictions, holders may seek to redeem in whichever country offers the easiest path, consuming reserves that were sized for local holders. This is a likelihood because both the EU and UK intend to make stablecoin redemption more straightforward, increasing the appeal of redeeming in those jurisdictions.
“We know what would happen if there was a run on a stablecoin – they’d all turn up here,” Bailey said according to a Reuters report.
While he called for international standards, the EU’s treatment of multijurisdiction stablecoins is quite different from the UK, which intends to allow foreign issued stablecoins to circulate in the UK, meaning it doesn’t automatically require geo ringfenced reserves. By contrast, for stablecoins to be used in the EU there’s a requirement for separate stablecoin reserves. As we show, in practice the net effect may be more similar than the first impression.
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