According to Reuters, the Bank of England will not lift proposed stablecoin holding restrictions until it is satisfied that the influx of bank deposits into digital assets does not threaten lending to the real economy.
summary
- The Bank of England will maintain the proposed stablecoin holding limits until it considers that risks to financial stability have subsided.
- The plan sets strict standards for individuals and corporations, and large companies may be exempt.
- The BOE and the UK Treasury are also developing resolution regimes to deal with the potential failure of stablecoins and protect market continuity.
Reuters reported on October 15 that the Bank of England plans to maintain its proposed cap on stablecoin holdings until it is satisfied that a large-scale movement of deposits from banks into digital assets does not pose a threat to financial stability.
Deputy Governor Sarah Breeden said in a speech that the introduction of unrestricted stablecoins in the UK could drain liquidity from commercial banks and cause a sudden contraction in credit for households and businesses.
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UK’s cautious stablecoin framework for a market still taking shape
The Bank of England’s proposals set strict standards for how much stablecoin an individual or company can hold at any given time. An earlier draft of the plan proposed limits of between £10,000 and £20,000 for individuals and up to £10 million for businesses. However, the largest businesses may be exempt to address operational or payment needs.
Under the UK’s proposed regulatory framework, the Bank of England would only supervise systematic pound-denominated stablecoins, including those deemed to have the potential to be widely used for payments or to pose a potential threat to financial stability. The rest will be supervised by the Financial Conduct Authority under a lighter regime.
In parallel to the cap debate, the BoE is undertaking a less publicized but important effort with the UK Treasury to design a resolution regime for stablecoin issuers. This study focuses on the “what if” scenario of a large-scale collapse of stablecoins. The goal is to prevent chaotic failures from spilling over into the financial system and ensure continuity of service to holders.
Meanwhile, Breeden’s firm stance comes just a week after a Bloomberg report indicated the central bank was preparing to introduce exemptions for certain companies, a move seen as a concession to industry pressure. The UK faces increasing competition from the US, and the recent passage of the GENIUS Act provides a clearer path to dollar-backed stablecoins, although this is still in its infancy.
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