The Bank of England is signaling a pragmatic and flexible approach to regulating stablecoins amid ongoing debates within the crypto and traditional financial sectors. Deputy Governor Sarah Breeden clarified that proposed restrictions on stablecoin holdings and transaction sizes are intended as short-term measures designed to promote stability, not permanent barriers. As the UK explores the integration of cryptocurrencies into its financial system, regulators aim to balance innovation with safeguarding systemic integrity.
Key Takeaways
- •The Bank of England plans to introduce temporary limits on stablecoin holdings and transactions, emphasizing their role in maintaining financial stability.
- •These measures are part of a broader consultation process, with plans to remove restrictions once stablecoin adoption stabilizes and does not threaten economic stability.
- •Industry groups have raised concerns that such limits could hamper innovation and portray the UK as unfriendly to crypto development.
- •Regulators are contemplating differentiated rules for large companies and entities operating within the digital sandbox.
- •The BOE underscores the importance of gradual integration and maintaining central bank dominance over critical settlement processes.
Temporary Stablecoin Restrictions and Future Plans
During a speech at DC Fintech Week, Sarah Breeden reiterated that the proposed restrictions on stablecoins are short-term measures aimed at ensuring financial stability. The limits, initially floated at between $13,429 and $26,858 (10,000 to 20,000 British pounds), are under review, with the central bank planning a consultation before finalizing rules. Breeden emphasized that these restrictions aim to monitor the transition and safeguard the real economy from destabilizing shocks, with the intention to lift them once the system adapts.
“So let me be clear. We would expect to remove the limits once we see that the transition no longer threatens the provision of finance to the real economy.”
Despite opposition from industry groups warning that the caps could hinder innovation and deter investment, the BOE maintains that these measures are necessary as part of a cautious approach to crypto regulation. Discussions are ongoing about setting higher limits for business entities and potential exemptions for firms operating within the digital sandbox, launched in October 2024 for testing blockchain solutions.
Concerns Over Systemic Risks
Breeden expressed concern that rapid withdrawals into stablecoins could precipitate a sharp decline in credit availability for UK households and businesses. The central bank’s priority is to give the financial system time to adjust, particularly since UK credit heavily relies on banking institutions. Restrictions are seen as a means of preventing destabilizing outflows that could impact economic stability.
“Our starting point is that applying limits to a user’s holdings of a given systemic stablecoin is the best way to avoid such a precipitous reduction in the availability of credit to UK borrowers.”
Regulating Settlement and Market Infrastructure
Breeden reaffirmed the BOE’s stance that core settlement functions in asset markets should remain under the central bank’s oversight, to prevent excessive interconnectedness that could threaten financial stability. While wholesale payments might continue to involve digital assets and tokenized deposits, the central bank does not foresee a future where all transactions are settled solely in central bank-issued money.
She called on the industry — including both traditional market players and emerging crypto firms — to participate in developing the use cases for blockchain technology and stablecoins. Breeden emphasized that collaborative efforts are essential for integrating these innovations into the financial system securely and effectively.
Overall, the BOE’s approach reflects a cautious but open attitude toward crypto innovation, aiming to harness the benefits of blockchain technology while mitigating risks to the UK’s financial stability.