Bailey and Lagarde among the star names speaking on the future of regulation for a $300bn asset class, as a US ban on a Fed-backed digital dollar looms
By Michael Hunter
An intense debate among some of the biggest names at global central banks has broken into the open this summer over the future of stablecoin regulation. It is likely to define much of the next phase of international development of the cutting-edge financial tech. And the stakes are high for policymakers, much of the banking industry and investors alike. According to the European Central Bank (ECB), between $300bn and $320bn has already been pumped into stablecoin instruments globally.
The 2026 summer debate has heated up as stablecoins gain traction with retail investors and move more deeply into the mainstream and the global financial system, via some of the world's most influential banks and brokerages. Discussions have been broad.
They have been held at a range of venues, from Federal Reserve policymakers at set-piece conferences on the Dalmatian shores of the Adriatic and the president of the ECB at a historic castle in Catalonia, to a “fireside chat” deep within the bluff, Portland Stone walls of the Bank of England between its longstanding governor and one of the most respected economic commentators in the word.
All of these influential voices, and more, will be heard in this story. It is an account of the latest thinking at major regulators, and the faultlines between them, on the opportunities and threats posed by the rise of stablecoins, one of the hottest topics in finance. The themes include systemic risk during any run on the assets and the need for international consensus on their regulation amid rapid innovation. Taken in combination, these ideas will define the next steps for this latest form of digital finance, which is typically backed by reserves of more traditional assets and uses the blockchain to verify legitimacy and ownership.
The debate also plays into stablecoin’s longer-term future as a fully established means of exchange, one of the key characteristics of money itself, and the obstacles to them achieving that status.
Broader reach for the dollar – and the Fed
In the immediate term, Fed policymakers have indicated that the growth of non-state stablecoins means nations outside the US will be influenced by interest rate decisions it takes. Christopher Waller, a Fed governor, told the 32nd Dubrovnik Economics Conference in late May, that using dollar-backed stablecoins internationally meant that:
“You are going to import US monetary costs, so it’s broadening the reach of US monetary policy in countries that use more stablecoins.” Currently, stablecoins are predominantly rooted in the United States. The vast majority of the market capitalisation of the global supply is pegged to the dollar, largely via the two dominant stablecoins, Tether’s USDT and Circle Internet Financial’s USD Coin (USDC). The ECB estimates that between 97 per cent and 99 per cent of the aggregate value of stablecoins is linked to the dollar. That gives politicians and regulators in the world’s biggest economy, including President Donald Trump, a louder voice in the debate over how the instruments are overseen.
Their counterparts elsewhere seem keener to be heard over the risks they perceive and what should happen next. Although they are simultaneously keen to innovate themselves, adding another plotline by setting up the prospect of rival digital coins with direct government backing as alternatives to the dominant digital dollar-backed ones currently run in the private sector.
New Fed chair backs private sector stablecoins
Waller, a Trump appointee to the Fed’s board, also backed stablecoin for use as a means of exchange: “I’ve always just looked at stablecoins as a payment instrument; there’s nothing evil about it, nothing dangerous about it.” The Fed’s approach since Trump’s return to power has been to back financial innovation, with a broader openness to integrating new technology into day-to-day payment infrastructure. It's new chair – Kevin Warsh, another Trump appointee who succeeded Jerome Powell as the world’s most influential central banker in late May – personifies the White House's thinking on digital money. He is a keen supporter of private sector stablecoins and is set against government-backed alternatives, known as Central Bank Digital currencies, or CBDCs. They are under consideration elsewhere, especially in Europe. But if a looming piece of legislation currently under discussion in Washington, the “Digital Asset Clarity Act”, makes it into law as written, a Fed-backed digital dollar will be banned.
The US passed its pioneering digital money legislation in 2025. The “Genius Act”, short for Guiding and Establishing National Innovation for US Stablecoins, opened the way for stablecoins to enter the mainstream, regulated financial infrastructure, so they can be used as a means of payment. In effect, the Genesis Act allowed the private sector to step in to digitise money as stablecoins. Warsh believes the innovation has proved successful and that digital assets is now part of the financial mainstream, and should be adopted more widely.
Actual arrangements for the specific rules concerning capital requirements, liquidity and oversight are still being drawn up. But the Genesis Act established what it refers to as “permitted payment stablecoin issuers”, or PPSIs.
US Treasuries and stablecoins
This area brings a vital part of the summer debate into view: Stablecoins as a means of deepening demand for US assets, currently predominantly the dollar, but also, potentially, for US government debt, all via the private sector.
Stablecoins backed by Treasuries are seen by some close to the Trump administration as a useful new source of demand for US government debt. Any such development would bring Treasuries, the cornerstone assets of the financial system, into this new wave of financial technology. Warsh and the Trump administration’s opposition to a direct role for government in digital money means any such move is likely to be led by the private sector. Elsewhere, policymakers are more unnerved by potential dangers of leaving such backing to firms.
In London, some top-level officials see a route to potential systemic risk, especially the current lack of an international regulatory framework for stablecoins, which remains ahead of any move into the crucial Treasuries market.
Fireside chat
It came up at the BOE’s fireside chat, between Andrew Bailey, its governor, and Martin Wolf, the chief economics commentator of the Financial Times, held in May as part of annual Bank of England Agenda for Research conference. Bailey himself raised the question of “why is the US administration pushing stablecoins?” before offering an answer:
“They are a home for US Treasuries as the backing assets … the expansion of dollar stablecoins around the world has the benefit as seen through the lens of the administration as a growing home for US Treasuries.”
Wolf questioned the stability of a system in which “everybody becomes increasingly a creditor of … a power that is seen as irresponsibly led, to put it mildly”. In reply, Bailey pointed to the importance of the BOE’s determination to “strongly support and underpin … the revival of multilateral institutions” of global finance. It was a reference to the World Bank and the International Monetary Fund, the international institutions that are required to help define and support multilateral rules, as well as to the Basel Committee on Banking Supervision.
Speaking truth to power
Such bodies have been undermined by a lack of international consensus and growing political tension, especially between the US and China and Russia. That has led to what Bailey called “a fracture that is very apparent on the G20”, one of the main convening mechanisms for the heads of government for the 20 biggest national economies. It was the G20 meeting in London in 2009 that established the coordinated international response to the financial crisis, which pulled the system back from the brink. Should any such action be needed in the future during a run on digital assets, it would probably be the main forum for it. The United Kingdom is due to chair the G20 in 2027, taking over from the US.
Bailey said, “We’re going to have to preserve it and seek to rebuild it. Part of that is to give the IMF the confidence to speak truth to power. “We have to have an institution that A, has the quality of analysis and assessment and B, the ability to speak it an convey it. If that decays, we are in a very bad situation … without having that [multilateral institutional] structure, we are in a much more dangerous place … we are at a critical time in that respect.
“The IMF needs to refocus. It sounds Trumpian. But it needs to refocus on its core mission”.
Bailey also chairs the Financial Stability Board (FSB), which monitors and makes recommendations on the global financial system and was established in direct response to the crisis. He added later that there was a need for international agreement on the rules governing financial supervision and oversight.
“The point I’ve made to the US banks, it seems like forever, but it’s probably a year or two, is that Basel is a prudential standard. But it is also the thing that sets the playing field apart. You don’t have a playing field unless you have this. So you want this. It is in your interest that there is Basel.
“The FSB’s role is [that] we need the same thing in stablecoin. If we want stablecoins to be part of the architecture of payments globally, and we want to improve cross-border payments, then we need them. But they are only going to work if we have international standards.”
Wrestling with Trump – and the meaning of money
“And that is going to be a coming wrestle with the administration, who see this as a scope to spread [stablecoins] around the world. But it’s marking out the playing field.” Wolf asked Bailey if he “shared the view” that stablecoins are a potential cause of a significant threat to financial stability. The governor replied: “Yes, if they develop the function of money and they don’t have the property of money, which is assured nominal value, then yes.”
Another major BOE figure, Megan Greene, a member of the rate-setting Monetary Policy Committee, cast doubt on the longer-term prospects of stablecoins more generally. At the same Dubrovnik conference at which Waller spoke, Greene said “I suspect we might wonder why we were talking about stablecoins.” She raised the prospect of a rival to the assets from tokenised deposits at banks, digital versions of holdings at traditional financial institutions which could take on the same role as stablecoins without the same extent of risk.
“I think tokenised deposits are probably going to take over from stablecoins and five years from now”. In the meantime, Greene pointed to some of the dangers linked to stablecoins from the perspective of traditional finance. That includes their potential uses for illicit purposes as well as the potential lack of stability depending on how they are backed. And she warned that if stablecoins pull deposits away from banks, their rise could weaken central banks' ability to transmit monetary policy through the system, a distinctly different view from that expressed at the same event by Waller.
Europe’s digital fiat drive
Throughout, the ECB is keeping a careful watch. It is seen as one of the major monetary institutions most well-disposed toward CBDCs. A fully digital euro would have direct backing as an electronic asset from one of the world’s major central banks. It would immediately be a major competitor to existing stablecoins. With direct backing from an issuer of traditional currency, known as fiat money, a digital euro would carry less risk than private-sector forms of digital money, which must buy assets to back them rather than issue them. That would be even safer than the idea of digitised traditional deposits highlighted by the BOE’s Greene. At the Castillo de Bará in Tarragona, Spain in May, Christine Lagarde, the ECB’s president, cast doubt on private sector stablecoins. She told the inaugural Banco de España LatAm Economic Forum of a “fundamental question”:
“Do we actually need stablecoins to obtain the benefits they are said to provide? Or are we mistaking the instrument for the outcome, when what matters is the architecture underpinning which other instruments can safely emerge?”
She concluded:
“Our task is not to replicate instruments developed elsewhere, but to build the foundations and the infrastructure that serve our own objectives, so that we can harness the benefits of innovation without importing the fragilities.”
Bonds on the blockchain
Across the English Channel, the BOE seems to have had similar thoughts, but about UK government bonds rather than currencies. Sarah Breeden – its deputy governor for financial stability and a leading candidate to take over the top job from Bailey when his term expires in March 2028 – spoke of the BOE’s role in helping to set up a digital version of Gilts, or UK government debt, alongside the Treasury and the Financial Conduct Authority in London.
Putting sovereign bonds on the blockchain or a similar distributed ledger technology (DLT) that underpins digital assets could open them up to new buyers. Increased demand may then, in turn, bringing down the yield on the debt, and so the costs to the taxpayer of servicing it. Addressing at the 16th City Week conference at The Royal Garden Hotel in Kensington, Breeden said:
“We are committed to supporting the Government’s pilot issuance of a digital gilt instrument (DIGIT) – the first tokenised sovereign issuance by a G7 country – designed both to enable the Government to explore how this technology can be applied to UK government debt and to catalyse the development of UK-based DLT infrastructure and, in turn, adoption across UK financial markets.”
Breeden also seemed to signal this summer that the BOE could take a less strict approach to stablecoins, after a previous outline of its intentions sparked a backlash among crypto investors. It had planned to insist on tight caps on stablecoin holdings for both individuals and institutions. It also intended to require stablecoin issuers to hold 40 per cent of the assets backing the coins in BOE accounts that would not pay interest. The intention was to limit the risk of a run on stablecoins, helping protect their nominal value during any wave of redemptions, a concern Bailey and Wolf discussed. But stablecoin issuers argued that the regulations would stifle innovation and curb take-up. Breedon told the conference that the BOE was “working to expand the range of settlement assets” being considered “to include not only tokenised deposits, as today, but also regulated stablecoins in sterling and foreign currencies.” The full details of BOE’s latest plans will be revealed “soon”, she said, “shortly after publication of our draft rules for systemic sterling stablecoins”, which is expected later this summer, at around the same time the US unveils its own set of similar rules.
Trans-Atlantic rift
In Washington, where CBDCs are so firmly out of favour, the extent of the trans-Atlantic rift on digital money is being laid bare on the floor of Congress. The mooted ban on a Fed-backed digital dollar in what will become the Digital Asset Clarity Act would mean, in effect, that there would be no government-operated rival to Tether’s USDT or Circle’s USDC.
The stringent provision comes as the BOE eyes digital Gilts, while internal debate over stablecoins continues. And while the ECB pledges further innovation, perhaps toward a fully digital euro, an idea it is exploring in depth and in public. It amounts to a dramatic divergence of vision over the next financial frontier. The outcome of the summer debate over digital assets looks likely to set the tone for how digital money will operate and internationalise at a tense time for global relations.
Very stark regulatory differences in vital areas of the global financial system could prove to be a danger in themselves, if Bailey’s advocacy on the importance of an internationally agreed playing field is overlooked as summer fades and central bankers head into the autumn, and the longer-term future for stablecoin, and digital finance itself.
