Bank of England Warns Stablecoins Threaten Singleness of Money

The Bank of England has published a working paper raising fresh concerns about the threat private stablecoins pose to one of the most fundamental principles underpinning modern monetary systems. Released on 27 February 2026 as Staff Working Paper No. 1,174, the study by BoE economist Benjamin Hemingway models the conditions under which monetary cohesion could break down as new digital payment instruments proliferate outside the central bank perimeter.

What Is the Singleness of Money?

The singleness of money refers to the principle that all recognised forms of currency, whether banknotes, commercial bank deposits, or coins, must be exchangeable at par, that is, at a 1:1 ratio with one another. A pound in a high-street bank account must be worth exactly the same as a pound note in a wallet. According to Hemingway, this is not a natural law but rather an institutional construction. As the paper states:

"The singleness of money is an equilibrium outcome shaped by institutional design, market structure and policy choices."

When that equilibrium holds, consumers and businesses transact without needing to assess the creditworthiness of the issuer behind each payment token. When it breaks down, confidence in the monetary system erodes.

The concern is not hypothetical. Hemingway's three-period banking model analyses what happens when new private entities enter the payments ecosystem with business models that diverge significantly from those of incumbent commercial banks. Stablecoins, issued by technology-driven firms without deposit-taking licences, represent precisely such a divergence.

The Model's Core Findings

Hemingway's framework demonstrates that small deviations from par value are not inherently catastrophic. Modest discounts, such as ATM withdrawal fees, already exist today without destabilising the broader system. However, the model finds that inefficient equilibria become significantly more likely when newly introduced forms of digital money are issued by private entities with distinct business models from established banks [1]. The further a stablecoin issuer's incentive structure diverges from that of a regulated bank, the higher the probability that its coin will trade at a persistent discount, fracturing interoperability.

The paper also identifies two stabilising forces within the existing architecture. First, central bank reserves ensure that all licensed deposit-taking institutions share a consistent asset base, aligning their incentives to maintain par exchange. Second, physical cash acts as a backstop, providing a universally accepted instrument through which any form of digital money can, in extremis, be converted to a universally accepted store of value.

Policy Implications for Stablecoin Regulation

The working paper arrives as the BoE is actively consulting on a proposed regulatory regime for sterling-denominated systemic stablecoins, which would require issuers to hold at least 40% of backing assets as unremunerated deposits at the Bank, with up to 60% in short-term UK government debt [2]. The Hemingway paper provides theoretical grounding for these requirements, demonstrating why fractional or opaque backing structures create the conditions for par fragmentation.

Critically, the paper signals that the BoE's concern extends beyond individual stablecoin failures. If multiple private stablecoins achieve significant scale while operating outside the reserve-sharing architecture of the banking system, the model suggests the economy could bifurcate into competing monetary zones, each with its own de facto unit of account. This outcome would complicate price setting, contract enforcement, and monetary policy transmission.

The findings also reinforce the BoE's position that stablecoins used in wholesale settlement, where transaction values are orders of magnitude larger than retail payments, carry risks that are qualitatively different and substantially larger than those in consumer-facing applications [2].

Broader Context

The paper's publication follows a 2025 BoE consultation paper that set out holding limits, capital requirements, and safeguarding rules for systemic stablecoin issuers. The Hemingway model adds academic rigour to that regime design, demonstrating that per-coin holding limits are not merely precautionary but structurally necessary to prevent rapid deposit flight from the banking sector during periods of stress. The BoE has noted that, absent such limits, a systemic stablecoin experiencing a run could drain commercial bank deposits at a pace that existing liquidity facilities were not designed to absorb [2].

For market participants, the paper is a signal that the BoE will apply a high bar to any stablecoin seeking to operate at systemic scale in the UK. Issuers whose business models depend on offering yield to coin-holders, or on holding backing assets in instruments other than short-term gilts and central bank deposits, will face the most scrutiny.

References

[1] Bank of England, "A model of monetary singleness", Staff Working Paper No. 1,174, Benjamin Hemingway, 27 February 2026. https://www.bankofengland.co.uk/working-paper/2026/a-model-of-monetary-singleness

[2] Bank of England, "Proposed regulatory regime for sterling-denominated systemic stablecoins", Consultation Paper, November 2025. https://www.bankofengland.co.uk/paper/2025/cp/proposed-regulatory-regime-for-sterling-denominated-systemic-stablecoins

[3] Central Banking Newsdesk, "Stablecoins pose risks to singleness of money: BoE study", Central Banking, 2 March 2026. https://www.centralbanking.com/fintech/7975269/stablecoins-pose-risks-to-singleness-of-money-boe-study