Bank of England’s stablecoin goals; can stablecoins fix US debt?

England’s central bank has received new stablecoin marching orders, while America’s fiscal future may depend on how big the stablecoin market can grow.

The U.K. government said Thursday that it will give the Bank of England (BoE) a new objective of ensuring that “UK payments regulation keeps pace with technological change and create conditions for innovation.” However, this new payment innovation objective “will sit below” the BoE’s primary objective of ensuring financial stability.

The BoE already has a secondary objective to facilitate financial innovation, including digital settlement via stablecoins. But City Minister Lucy Rigby said the new role will help the BoE “drive innovation in payments and digital finance, ensuring that the UK remains a global leader in financial services.”

Rigby singled out tokenization and distributed ledger technology (that’s blockchain for you plebs reading this) as among the digital payments developments with “the potential to transform financial markets around the globe.”

The government expects to formalize this new objective via amendments to the Financial Services and Markets Bill, which the House of Lords will debate on September 7 and 9. Assuming the Bill isn’t waylaid, the BoE will be required to update Parliament annually on the progress of its new innovation assignment.

The BoE is splitting crypto oversight with the U.K.’s Financial Conduct Authority (FCA), with the BoE tasked with overseeing sterling-backed ‘systemic stablecoins’ aka those that could pose a threat to the nation’s financial system should some kind of panic cause a flood of fiat redemption requests that local banks are unequipped to handle.

GENIUS rules coming into focus

Stateside, efforts continue to implement the stablecoin-focused GENIUS Act that President Trump signed into law last year. On August 17, the Treasury Department announced it was seeking public comments on its proposed rulemaking efforts as it counts down to the Congressionally-mandated deadline for implementing GENIUS rules by January 18, 2027.

Section 3 of GENIUS requires stablecoin issuers to hold a U.S. federal- or state-issued license if they want their token to participate in America’s financial system. For the time being, U.S.-licensed digital asset service providers will need to ensure that any foreign stablecoin issuer has the technological capacity to comply with U.S. law enforcement requests regarding the use of an issuer’s tokens. But as of July 18, 2028, only U.S.-approved stablecoins will be eligible for offering or sale via U.S. service providers.

Treasury is proposing rules that would clarify what it means to “issue a payment stablecoin in the United States,” as well as define what constitutes a stablecoin offer or sale to people in the U.S. Interested parties must submit their comments by October 19.

A Treasury offshoot, the Office of the Comptroller of the Currency (OCC), opened comments on its own proposed GENIUS implementation rules in February. At last week’s Wyoming Blockchain Symposium, OCC chief Jonathan Gould said his office appreciated all the comments that stakeholders had “helpfully provided” and emphasized that the OCC is “very intent on moving quickly and getting a final rule out by November so that we will be able to start processing applications in the new year.”

So far, the proposed GENIUS rules are facing the most pushback from the crypto crowd, which focuses on the Act’s anti-money laundering (AML) and sanctions-evasion provisions. In June, the tech-focused venture capital group Paradigm and the Hyperliquid Policy Center filed a joint comment in response to proposed rules issued by two other Treasury offshoots: the Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC).

In a nutshell, when it comes to a company’s ‘know your customer’ (KYC) obligations, the letter seeks to distinguish between primary and secondary market activities. Primary activities involve a stablecoin issuer issuing/redeeming tokens directly to/from customers, while secondary markets include everything beyond an issuer’s direct control, from digital wallets to decentralized finance (DeFi) platforms and more.

The letter particularly focuses on non-custodial DeFi platforms, much like the Hyperliquid decentralized exchange (DEX), which is reportedly eager to launch a ‘compliant’ version of its platform in the U.S. The letter claims that forcing stablecoin issuers to monitor activity on secondary markets, where AML/KYC is can be an afterthought, could result in issuers “pulling U.S.-regulated stablecoins out of DeFi and creating a void filled by unregulated, offshore, non-dollar alternatives.”

This view was echoed in a comment filed by the Blockchain Association (BA) this week. The BA wants Treasury and its various appendages to clarify their definitions of ‘account,’ ‘customer,’ and ‘digital asset service provider’ to ensure that issuers’ AML/KYC obligations don’t extend to ‘downstream’ peer-to-peer transactions in which stablecoin issuers have no say.

As with all blockchain narratives, the BA’s letter didn’t spare the hyperbole, warning that the government’s failure to follow the BA’s advice could “cripple” the crypto sector. Call us cynical, but with nearly the entire federal apparatus now in the hands of ‘see no evil’ crypto fans, we suspect crypto platforms won’t require any wheelchairs anytime soon.

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Help me, stablecoin Kenobi: you’re America’s only hope

The recent surge in the fiat value of prominent tokens like BTC has been credited to a variety of factors, including Trump’s comments about using taxpayer funds to buy BTC to fill his Strategic Bitcoin Reserve. Then there’s the fact that America’s national debt just eclipsed the psychological barrier of $40 trillion, contributing to the ‘debasement trade,’ aka investors’ pursuit of assets not linked to the U.S. dollar.

And then there’s Treasury Secretary Scott Bessent’s announcement last week that the government was doubling its bond buyback budget from $2 billion to $4 billion. That move only managed to lower yields for about 48 hours, forcing the government to suggest it could inject steroids into these buybacks by tapping into the nearly $1 trillion in the Treasury’s general account.

This week, GENIUS Act co-author Sen. Bill Hagerty (R-TN) tweeted that he’d written the bill “in part to cement dollar dominance in the digital arena and drive structural demand for U.S. Treasuries.” Hagerty expressed hope that “the downstream effect on borrowing costs and affordability could be the bill’s most important consequence for the American people.”

A year ago, Bessent claimed the overall stablecoin market cap could acquire $3.7 trillion worth of T-bills by 2030, a buying spree that would “help rein in the national debt.” Others have rubbished these estimates as wildly overblown, given that the overall stablecoin market cap currently stands at just over $300 billion.

But foreign governments are losing faith in both the dollar’s traditional role as a ‘safe haven’ and America’s ability to pay its bills. Meanwhile, artificial intelligence (AI) companies are directly competing with Treasury by issuing hundreds of billions of dollars of their own debt. The U.S. appears determined to do what it can to boost the stablecoin sector in the hope that somebody keeps showing up to the T-bill auctions with wallet in hand.

Last week, the Aspen Economic Strategy Group released a report titled Stablecoins After GENIUS: Private Money, Public Debt, and the Global Dollar. The report suggests that stablecoins “could materially increase the demand for short-term T-bills and lower fiscal costs under strong growth scenarios,” but there are a few caveats.

For one, some of this growth will be offset by “users shifting funds out of domestic commercial bank deposits, currency, and money market mutual funds (MMFs), which themselves are backed by or invest in Treasury securities.” The shift from long-term to short-term T-bills will lead to “greater volatility in Treasury debt service costs and higher rollover risk.”

Net new T-bill demand will increase only if stablecoin growth comes from users outside the U.S. or if funds are reallocated from domestic banks that don’t invest heavily in T-bills. But foreign governments could enact policies limiting the transfer of local funds into dollar-backed stablecoins (the European Union has repeatedly voiced fiscal sovereignty concerns due to the popularity of dollar-based tokens in the EU).

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Secret AI agent man

The surge in major token prices that began last week contributed to the first month-on-month growth numbers in the overall stablecoin market cap following three consecutive months of cap decline that collectively took nearly $11 billion out of the market. 

But the benefits of August’s growth spurt, in particular the gains recorded in the past 10 days, haven’t been shared evenly. Since August 19, USDT’s cap has risen by only about $350 million to $183.3 billion, while USDC’s cap has shot up by $2 billion to $73.8 billion. Ripple Labs’ RLUSD added ~$300 million to raise its cap to $2.1 billion, but other dollar-backed stablecoins have been largely flat throughout this period.

While USDT’s market cap appears unassailable for the foreseeable future, USDC continues to lead USDT in other metrics, including stablecoin-based trading volume on DEX’s, although USDT continues to narrow this gap. But USDC accounts for nearly all stablecoin transfers by artificial intelligence agents, nearly tripling recent agentic AI transfers using USDT.

Before anyone hands the keys of their financial future to AI agents, it’s worth remembering that this remains frontier tech. Reuters just did a deep dive on the agentic AI follies at Meta (NASDAQ: META), and it’s a good cautionary tale for those who might be a little too eager to embrace our new AI overlords.

After adopting founder Mark Zuckerberg’s ‘AI native’ playbook, Meta ultimately found that its AI agents were performing “large-scale, disruptive actions that humans are unlikely to execute.” This led to a 40% year-on-year rise in major technical and security incidents, including service disruptions and possible data leaks. The amount of time Meta staff spent “firefighting” these incidents rose 70% over the same period.

And then there’s the recent OpenAI-Hugging Face debacle, in which OpenAI’s agents went completely rogue. In a postmortem issued this week, OpenAI warned that “without proper safeguards, highly capable AI agents are now able to work around technical controls, collaborate through unapproved channels, and take dangerous actions that no human directed.”

Other research has uncovered vulnerabilities in the x402 protocol that were fortunately patched before bad actors could take advantage. So perhaps it’s best to limit agentic AI’s wallet access to micropayments for a little while longer.

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New Euro, Hong Kong dollar stables

Putting the dollar and pound aside for a moment, U.K.-based fintech Revolut has finally made good on a nearly two-year-old pledge by launching a new euro-backed stablecoin it’s calling EURR. The token is issued by the MiCA-licensed Bridge Building, a Luxembourg-based offshoot of Bridge, the stablecoin infrastructure firm acquired by payment processor Stripe in 2024 for $1.1 billion.

For the moment, Revolut’s EURR is undergoing phased testing with select customers in Denmark, Poland, and Portugal. Assuming no international incidents occur, EURR will then be made available to the company’s 80 million customers via the Revolut app.

For the record, there is already a euro-backed stablecoin called EURR, issued by the Tether-backed Stablr. In May, Stablr’s EURR slipped its peg with the euro after an exploit that saw a bad actor mint 4.5 million new unbacked tokens and dumped them onto exchanges. EURR has yet to regain its 1:1 peg with the euro, and precisely why Revolut would choose to utilize such a tarnished ticker for its new token remains a mystery.

In Hong Kong, the special administrative region of China has finally taken concrete steps to launch its first HKD-denominated stablecoin. Earlier this month, the Anchorpoint Financial consortium announced that it had partnered with HashKey Exchange, the region’s largest digital asset platform, to help distribute Anchorpoint’s HKDAP token (‘Hong Kong Dollar at Par’, in case you were wondering).

HKDAP is still in its ‘Beta Access’ phase, currently only accessible by eligible institutions and professional investors. But HashKey has already completed its first HKDAP minting and redemption transactions, so crack on.

This week, Anchorpoint announced that the Hong Kong subsidiary of U.K. bankers Standard Chartered (NASDAQ: SCBFF), Standard Chartered Bank (Hong Kong) Ltd (SCBHK), had joined the ranks of HKDAP’s authorized distributors. The move isn’t surprising, as SCBHK is Anchorpoint’s largest shareholder (other shareholders include Web3 firm Animoca Brands and local telecom titan HKT).

SCBHK says it’s eager to “support use cases” for HKDAP, including adopting the token for intragroup settlement “in the near term.” SCBHK also plans to launch HKDAP-based tokenized money market fund subscriptions and settlements with leading international and local asset managers in Q4.

It’s been a long and somewhat winding road to get to this point. In April, the Hong Kong Monetary Authority (HKMA) issued its first stablecoin licenses after a long period of consultation, deliberation, and false starts following the passage of its Stablecoins Ordinance well over a year ago. With HKDAP now out of the gate, all eyes turn to the other members of the HKMA’s first batch of licensees, including the Hong Kong division of banking giant HSBC.

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Watch: Digital currency regulation and the role of BSV blockchain