Bank of England will lift stablecoin limits once threat to economy eases
The UK central bank will launch a consultation on the regulation for coins that are deemed systemically important by the end of the year
[LONDON] The Bank of England (BOE) will lift proposed limits on the amount of stablecoins individuals and businesses can hold once the digital assets stop being a threat to the economy.
Deputy governor Sarah Breeden said on Wednesday (Oct 15) that the rapid adoption of stablecoins risked causing “significant” outflows of deposits from banks, which could then prevent credit reaching businesses and households.
To prevent that, the BOE is considering different tools, including limits on “customer’s holdings of systemic stablecoins, aggregate limits on the overall size of the coin, and limits on transaction size”, she said.
However, these will be “temporary” and the central bank will “remove the limits once we see that the transition no longer threatens the provision of finance to the real economy”.
The remarks represent a major softening in the BOE’s approach after experts raised concerns that proposed limits on holdings would hinder the adoption of sterling-pegged stablecoins.
The UK central bank will launch a consultation on the regulation for coins that are deemed systemically important by the end of the year, as regulators rush to keep pace with the Trump administration’s Genius Act in the US. The bank is looking at a ceiling of £20,000 (S$34,732) for individuals and £10 million for businesses, which Breeden said could then be raised at a later date.
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The BOE is concerned that a more relaxed set of regulations would need to be changed later on if usage soared, according to Breeden.
“We could have a different regime to start with but I would worry that as they scale we would then want to change the regime,” she said on a panel in Washington. “Retrofitting regulation as use takes off does not work.”
Still, recent remarks from UK officials suggest a more positive approach towards the digital assets. BOE governor Andrew Bailey had taken a sceptical stance towards stablecoins, which are a cryptocurrency pegged to a traditional counterpart such as the US dollar. He’d warned that they risked undermining the public’s trust in money.
However, he has taken a more positive approach in recent months, saying they could drive innovation in payment systems.
Breeden confirmed a Bloomberg News report that there will be exemptions to the holdings limits for certain businesses.
“There would likely be an exceptions regime so that the largest businesses in the country (eg supermarkets) could hold more if required,” she said.
Defending the proposals for limits, she said that significant and rapid outflows of bank deposits into such stablecoins could lead to a precipitous drop in credit for businesses and households if the banking system were unable to increase, at scale and at pace, its use of wholesale financing from non-banks.
Breeden also pushed back against criticism that the UK was losing ground to other jurisdictions with a slow and overly cautious approach.
“With the flurry of activity in the US this year, I hear people say that the UK is behind in its work on stablecoins. I must say I don’t recognise this,” she said.
“We will consult later this year on our requirements for sterling-denominated stablecoins used in systemic payment systems. That will put us in a position to finalise our regulatory regimes next year, as is the aim in the US.” BLOOMBERG
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