Thread by @cashequivalence

🧵 The Lords' financial services regulation committee heard from Simon Gleeson, a lawyer and academic specializing in financial law, yesterday on the matter of stablecoins. Also testifying was Kern Alexander, a banking and financial market academic. Here's a summary of some of the more interesting points made 👇

Gleeson framed stablecoins primarily as an evolutionary financial instrument rather than a revolutionary one, arguing that economically and legally they resemble longstanding structures such as banknotes or money-market-fund-like instruments that are easier to transfer digitally.

He emphasized that the core conceptual model is a transferable claim backed by high-quality liquid assets, sitting halfway between money and securities, and that regulation must distinguish between the composition of the asset backing the coin and the payment or transfer mechanism through which it circulates.

A recurring theme in his evidence was that the biggest regulatory challenge lies not in backing assets but in custody, intermediation, and the regulatory classification of the instrument. Applying securities-style regulation to instruments intended to function as money, he argued, risks “killing” the product by over-regulating intermediation that must remain flexible for payments to work efficiently.

Gleeson also stressed stablecoins could produce meaningful disintermediation of banks, because large corporates hold deposits primarily to enable payments rather than to earn interest; if a payment medium without bank credit risk existed, many would use it.

At the same time, this could shift funds away from bank lending toward government debt (which backs many stablecoins), potentially draining credit from the real economy — a macroeconomic issue that he saw as more a matter for fiscal and monetary policy than regulation.

Gleeson was sharply critical of some proposed regulatory tools, particularly holding limits, calling them misguided because any fixed cap would be arbitrary and would fail to match real-world uses such as large transactions.

On financial stability, Gleeson warned that the main crisis risk might not be deposit flight into stablecoins but rather runs on stablecoins themselves, which could force rapid liquidation of government securities and require state intervention—much as governments supported money-market funds in 2008.

Prof Alexander on the other hand downplayed the novelty and macro-systemic importance of stablecoins, describing them as analogous to travellers’ cheques or longstanding payment instruments, rather than transformative monetary innovations.

Alexander placed much greater weight on consumer protection, legal clarity, and financial crime risks as the central regulatory priorities. He highlighted cases such as Terra to argue that the main real-world harms so far have been investor losses arising from unclear legal rights, misleading disclosures, and weak contractual protections rather than systemic financial instability.

He also downplayed systemic-risk concerns relative to some policymakers and banks, arguing that stablecoin issuers are not yet large enough to pose major financial-stability threats and that fears of deposit flight may be overstated because funds often remain within the banking system indirectly.

One of the most explicit moments of disagreement came when Gleeson suggested that stablecoins and cheap FX conversion could weaken the logic of a single dominant trade currency. A committee member challenged this directly, arguing that exchange-rate volatility and pricing risk still make a universal currency attractive and that Gleeson’s claim “doesn’t hold water.”

Gleeson also made a striking remark that proposals to turn sterling into a widely circulating global currency (for example via a “britcoin”) would be destabilizing, because offshore circulation could massively expand the effective sterling base and produce volatile capital flows.