- The UK House of Lords stablecoin review is central to the ongoing debate on integrating digital assets into the financial system, balancing innovation, financial stability, and consumer protection.
- Public evidence sessions included insights from economists and legal scholars regarding the current and potential future uses of stablecoins, highlighting doubts about their readiness as everyday monetary instruments.
- Stablecoins, pegged to fiat currencies, primarily serve as on- and off-ramps for crypto trading rather than as mainstream payment methods.
The UK House of Lords stablecoin review has become a focal point in the country’s wider debate over how digital assets should fit into the modern financial system. As governments around the world race to define rules for crypto-related technologies, the United Kingdom is attempting to strike a careful balance: encouraging innovation without undermining financial stability or consumer protection. During a recent public evidence session, members of the House of Lords Financial Services Regulation Committee heard from economists, legal scholars, and policy experts about what stablecoins are actually being used for today—and what they might realistically become in the future. The discussion made one thing clear: while stablecoins play an important role in crypto markets, many experts remain unconvinced that they are ready to function as everyday money for households and businesses. This stablecoin review did not take place in isolation. It forms part of a broader regulatory effort by the UK government and the Bank of England to define how digital payment instruments should be treated under existing financial laws. The session examined issues ranging from competition with traditional banks to cross-border payments, criminal misuse, and the implications of regulatory choices being made in the United States.
Stablecoins and Their Role in Today’s Crypto Economy
At the heart of the House of Lords discussion was a basic but crucial question: what are stablecoins actually used for right now? Despite frequent claims that they represent the future of money, several witnesses argued that stablecoins mainly serve as on- and off-ramps for crypto trading rather than as true payment instruments. Stablecoins are digital tokens typically pegged to a fiat currency such as the US dollar or British pound. Their value is designed to remain stable, unlike volatile cryptocurrencies such as Bitcoin or Ether. In theory, this stability makes them suitable for payments. In practice, however, their primary function has been to allow traders to move funds quickly between crypto exchanges or to park value temporarily without converting back into traditional bank money. This reality shaped much of the stablecoin review discussion. Lawmakers were keen to understand whether stablecoins are evolving beyond this limited role or whether they remain tools designed primarily for the crypto ecosystem itself.
Lawmakers Focus on Banks, Competition, and Financial Stability
Members of the Financial Services Regulation Committee asked pointed questions about how stablecoins might affect the existing banking system. Could they drain deposits from commercial banks? Might they weaken the transmission of monetary policy? And do they introduce new systemic risks that regulators are not yet equipped to manage? Another major theme was competition. Some policymakers worry that stablecoins issued by large technology firms or global platforms could eventually challenge banks in providing payment services. Others argue that the UK’s already efficient payment infrastructure leaves little room for disruption.
Cross-border use also featured prominently. Stablecoins can, in theory, move value across borders faster and more cheaply than traditional banking rails. But this advantage also raises concerns about regulatory arbitrage, money laundering, and the enforcement of sanctions. These issues are precisely why the House of Lords launched this stablecoin review—to test whether current proposals are robust enough to deal with both the opportunities and the risks.
Chris Giles: Stablecoins Are Not the Future of Money—Yet
One of the most notable contributions came from Chris Giles, an economics commentator for the Financial Times. Giles expressed skepticism about the idea that stablecoins are on the verge of replacing traditional money, particularly in the UK context. According to Giles, stablecoins currently suffer from weak legal foundations and regulatory uncertainty. Without clear rules governing their backing, redemption rights, and legal status, they remain risky instruments for households to treat as money.
He argued that clear and credible regulation could change this over time. If stablecoins were subject to strict requirements around reserves, liquidity, and consumer protection, they might eventually become useful tools for specific payment use cases. These could include large-value corporate transfers or international transactions where existing systems are slow or expensive. However, Giles was unconvinced that stablecoins would significantly disrupt retail banking in the UK. He pointed out that Britain already benefits from fast, low-cost payment systems such as Faster Payments. For everyday domestic transactions, stablecoins offer little additional value. In his view, stablecoins are best understood as infrastructure for crypto markets rather than as a revolutionary form of money. This perspective strongly influenced the tone of the House of Lords stablecoin review, grounding it in current usage rather than future hype.
Interest, Yields, and the Nature of Money
A particularly nuanced part of the discussion focused on whether stablecoins should pay interest. Giles argued that this question goes to the heart of how stablecoins should be classified within the financial system. If stablecoins are treated purely as payment instruments, he suggested, there is no strong case for them to offer yields. Historically, interest-bearing current accounts have not replaced traditional banking products, and the same may hold true for stablecoins.
On the other hand, if stablecoin issuers begin offering interest, they start to resemble banks or money market funds—activities that traditionally require heavy regulation. This is why the Bank of England has proposed treating systemic stablecoins as a form of private money subject to strict oversight. Giles supported this approach, emphasizing the importance of full backing and access to central bank liquidity where appropriate. At the same time, he warned that stablecoins could be attractive to criminals if oversight is weak. Strong Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements, he argued, are non-negotiable. These concerns were central to the stablecoin review, highlighting the delicate line regulators must walk between innovation and risk.
Arthur Wilmarth Jr.: A Warning From the United States
While Giles focused on the UK context, US law professor Arthur E. Wilmarth Jr. offered a sharply critical view of recent policy developments in the United States—particularly the proposed GENIUS Act. Wilmarth described the bill as a serious mistake, arguing that it would allow non-bank entities to issue dollar-backed stablecoins without being subject to the same regulatory standards as banks. In his view, this creates an uneven playing field and weakens safeguards that have been built up over centuries. He argued that tokenized bank deposits would be a safer and more effective alternative. Under this model, digital representations of bank deposits could offer many of the technological benefits associated with stablecoins while remaining firmly within the existing regulatory perimeter.
Wilmarth warned that allowing lightly regulated firms to issue widely used payment instruments could increase the risk of financial instability, especially during periods of market stress. He pointed to historical episodes where shadow banking activities amplified crises rather than absorbing shocks. Although critical of US policy choices, Wilmarth praised the UK’s more cautious approach. He acknowledged that the Bank of England appears committed to building a robust framework that prioritizes stability over speed—a theme that resonated strongly throughout the House of Lords stablecoin review.
What the Stablecoin Review Tells Us About the UK’s Direction
The House of Lords stablecoin review revealed a sober, evidence-driven approach to digital asset regulation in the UK. Rather than embracing hype or issuing blanket rejections, lawmakers are asking hard questions about real-world use, systemic risk, and consumer protection. Expert testimony suggested that stablecoins, at least for now, function primarily as tools within the crypto ecosystem rather than as mainstream money. While they offer potential benefits in specific contexts, they also introduce new risks that cannot be ignored. By aligning stablecoin oversight with existing financial principles, the UK aims to foster innovation without compromising stability. Whether this approach proves successful will depend on how well regulators adapt as technology and markets continue to evolve. For now, the message from the House of Lords is clear: stablecoins may have a role to play, but only under rules that protect the wider financial system.
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