The Bank of England’s Stance on Stablecoins
The Bank of England has announced that it will maintain its proposed caps on stablecoin holdings until there are assurances that a substantial shift of bank deposits to digital currencies does not jeopardize lending to the real economy. This statement was highlighted in a report by Reuters on October 15.
Concerns Over Stablecoin Adoption
Deputy Governor Sarah Breeden expressed concerns that if stablecoins gained unrestricted adoption in the UK, it could lead to reduced liquidity within commercial banks, resulting in credit contractions that would negatively impact both households and enterprises.
Proposed Caps on Stablecoin Holdings
The central bank’s framework suggests stringent limits on how much stablecoin individuals and businesses can possess at any given time. Initial proposals indicated personal caps between £10,000 to £20,000, while businesses could be restricted to £10 million, with larger corporations potentially exempted due to operational necessities.
Regulatory Oversight
It is important to note that the oversight of stablecoins will be tiered; the Bank of England will regulate only those sterling-denominated stablecoins that are considered systemic, meaning they are widely used for transactions or could endanger financial stability. Other stablecoins will be managed by the Financial Conduct Authority, which will impose less stringent regulations.
Crisis Management Framework
In conjunction with its scrutiny of stablecoin caps, the Bank is also working alongside the UK Treasury to establish a framework to manage potential crises related to stablecoin issuers. This initiative aims to address scenarios involving the collapse of a major stablecoin and to secure continued services for holders—making sure that any failure does not destabilize the broader financial landscape.
Industry Pressures and Competition
Furthermore, Breeden’s firm position follows a report from Bloomberg that suggested the central bank might be considering exemptions for certain firms, likely in response to growing pressures from the industry. The UK is also facing heightened competition from the United States, especially following the passage of the GENIUS Act, which has set a more defined regulatory course for dollar-backed stablecoins.
