Stablecoins Face Skepticism From Experts at UK House of Lords Session
Expert witnesses expressed skepticism about stablecoins becoming widely-adopted currency during a House of Lords inquiry, endorsing stringent Bank of England regulation and condemning the US GENIUS Act as "disastrous" for permitting non-bank entities to enter money issuance.
Skeptical perspectives on stablecoins dominated proceedings at the United Kingdom's House of Lords on Wednesday, where expert witnesses argued that these digital tokens primarily serve as "on- and off-ramps into crypto," dismissing them as the currency of tomorrow.
A public evidence session took place at the House of Lords as part of an ongoing inquiry examining the appropriate regulatory framework for stablecoins in Britain, with particular focus on their implications for payment systems, banking sector dynamics and overall financial stability concerns.
During the hearing, the Financial Services Regulation Committee (FSRC) questioned expert witnesses about various aspects of stablecoin regulation, including their potential rivalry with traditional banking institutions, applications in cross‑border transactions, vulnerabilities to illicit financial activities and implications of the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act.
The committee received divergent perspectives from Chris Giles, an economics commentator at the Financial Times, and Arthur E. Wilmarth Jr., a professor of US law.
Digital tokens primarily serve as crypto "on- and off-ramps"
During his testimony, Giles explained to committee members that stablecoins have failed to gain significant traction within the UK market primarily due to the absence of "clear legal underpinning and clear regulation," which renders them too risky for ordinary households to adopt as a monetary instrument.
According to Giles, if appropriate regulatory frameworks were established, the primary benefits would involve facilitating transactions and payment processing that would be "more efficient, cheaper, potentially faster than currently" available options, with particular advantages in cross‑border transactions and large-scale corporate fund transfers.
For domestic applications within the UK, Giles expressed doubt that sterling-backed stablecoins could substantially reduce the intermediary role of banks, noting that instant payment systems with minimal costs already exist in the country.
In his view, the predominant application of stablecoins today remains as "on- and off- ramps" providing access to cryptocurrency markets for what he characterized as an "intrinsically worthless asset," which he considered "not massively interesting or going to take over the world."
Considerations around yield, oversight and "new suitcases of cash"
Regarding the question of interest payments, Giles observed that the debate over whether stablecoins should generate yield touches fundamental questions about their intended function and the architecture of Britain's financial infrastructure.
Should stablecoins operate solely as a payments infrastructure, Giles argued, "there's no need to pay interest," and anxieties about undermining traditional deposit funding mechanisms were overstated given that interest‑bearing current accounts already operate in the market without having "taken over the whole of our financial system."
Giles expressed approval of the Bank of England's evolving approach toward overseeing stablecoins "like money," implementing rigorous reserve requirements, contingency resolution frameworks, and providing an emergency liquidity safety net to address scenarios involving a "very rapid run."
However, he also cautioned that stablecoins present appealing opportunities for criminal exploitation, noting they have been characterized as "your new suitcases of cash" and emphasizing that global coordination on exchange oversight combined with more robust Know Your Customer (KYC) and Anti Money Laundering (AML) verification processes would be critical should stablecoins expand beyond their present specialized market.
US GENIUS Act branded a "disastrous mistake"
In his testimony, Wilmarth informed the Committee that he does not consider stablecoins to be "a natural component of the financial system," proposing instead that tokenized deposit instruments could deliver superior performance.
He characterized the GENIUS Act as both "terrible" and a "disastrous mistake" for enabling non‑bank entities to create dollar‑denominated stablecoin products.
Wilmarth portrayed these instruments as representing "regulatory arbitrage" that permits minimally regulated companies to participate in "the money business" while eroding a comprehensive prudential regulatory structure that has evolved "over centuries within the banking system."
He further stated that he had a "hard time agreeing with anything in the bill," criticizing the United States for making "many unfortunate choices," while acknowledging that the Bank of England was developing a significantly more rigorous regulatory approach.