Cryptocurrency could be part of future UK banking system
In his annual Mansion House dinner speech, Mr Bailey said the UK needs to 'harness the potential of digital technology for retail payments' both within Britain and internationally to help future-proof payments infrastructure and ensure it can play its part in boosting growth in the UK.
But he added a dose of scepticism over any plans for a digital pound.
While he reiterated concerns over so-called stablecoins (a type of cryptocurrency which is backed by a traditional asset such as a currency or commodity), he said there 'may well be a role' for them in the future.
Mr Bailey said: 'There is an urgent need for innovation now in the area of payments, and the opportunity is there, no doubt about that.'
He said the Bank would collaborate with authorities and industry to 'design and deliver the next generation of UK retail payments infrastructure'.
'This must be a priority, both to replace ageing infrastructure and as part of promoting growth in the UK,' he said, echoing financial services reforms outlined by Chancellor Rachel Reeves on Tuesday to help boost the economy.
Mr Bailey added: 'There may well be a role for stablecoins going forward, but I don't see them as a substitute for commercial bank money.
'Moreover, our job will be to ensure that those stablecoins that purport to be money are safe.
'Perhaps there may also be a role for retail central bank digital currency, but I remain to be convinced why the natural next step is to create a new form of money rather than put digital technology into retail payments and bank accounts.'
His comments follow just days after he warned global banking giants against issuing their own stablecoins, which he said threaten to take money out of the banking system and therefore leave less available for lending.
Mr Bailey has also appeared to be increasingly cooling on the idea of a digital pound in recent months, raising doubts over whether it would ever be officially launched.
In his speech, Mr Bailey cautioned over the ongoing impact of the global trade war, with the current shift in policy marking the 'most sudden and fundamental in the post-war era'.
'The shifts we have witnessed – and continue to witness – mark a generational change in the system of trade amongst nations,' he said.
'Increasing tariffs creates the risk of fragmenting the world economy, and thereby reducing activity,' he said.
'Recent events have exposed fault lines in the multilateral system of relations between nations, including in the global trading system,' he added.
He said the International Monetary Fund (IMF) and the Word Trade Organisation (WTO) can both work together and play a part in cooling the current trade war by helping 'achieve agreement amongst its members on the global rules of the road and how they are adhered to'.
But he stressed he cannot 'underestimate the challenges' in addressing the current trade tensions.
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