Bank of England Softens ‘Overly Conservative’ Stablecoin Plans Amid Industry Pressure

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In brief - The Bank of England is reportedly reconsidering parts of its stablecoin plan. - A 40% reserve floor could cost issuers £11.2 million per £1 billion in circulation. - Observers say the bank’s shift could point to a move toward a more workable regime. The Bank of England is reconsidering key parts of its proposed stablecoin rules, softening its push after industry pushback over planned limits on holdings and reserve requirements. Sarah Breeden, the Bank of England’s deputy governor for financial stability, told the Financial Times on Thursday that officials were weighing other approaches to containing stablecoin-related risks as the sector grows. “It was based on experience of potential liquidity stress,” Breeden said. “But we will look hard to see if we have been overly conservative in our thinking there.” Breeden noted the reserve proposal was based on liquidity stress seen during bank runs of late, including the deposit withdrawals from Silicon Valley Bank in 2023. She also acknowledged that the industry would prefer to hold more interest-earning assets. The central bank is “looking very hard at whether there are different ways we can manage what we think is an important risk as stablecoins come into play,” Breeden said. The remarks came a day after Sasha Mills, the Bank’s executive director for financial market infrastructure, said at the Financial Times Digital Asset Summit that the bank is treating stablecoins as “a new form of money” and expects to accept applications from would-be systemic stablecoin issuers by year-end. Over the same week, BoE Governor Andrew Bailey warned of a coming clash with the U.S. over stablecoin standards, arguing that weaker redemption rules for dollar tokens could push stress into the UK during a crisis. Stablecoins are crypto tokens designed to track the value of fiat currencies such as the dollar or pound, often by holding reserves in cash, government debt, or similar assets. In the UK, oversight has been split: the FCA is expected to supervise non-systemic issuers, while the Bank of England would regulate stablecoins widely used for payments. ‘Important signals’ The Bank of England’s latest comments appear to move its stablecoin plan from a hard-limit model toward a more flexible regime built around liquidity, redemption, and issuer safeguards. “These are important signals from the Bank of England that it is prepared to revisit its stablecoin proposals,” Katie Haries, Coinbase’s head of policy for Europe, told Decrypt. “We’ve said for a long time that a cap on stablecoin holdings is a cap on innovation, with real and significant risks for UK competitiveness.” The Deputy Governor said that the Bank wants to create a regime where stablecoins can succeed and “deliver benefits to the users,” Haries noted. “This is exactly the right ambition, and what the crypto asset industry and every day people are asking for.” Under the BoE’s proposed reserve split, UK stablecoin issuers would earn yield on only 60% of their reserves, compared with Circle holding about 88% of reserves in Treasury bills and repos, Andres Monty, CEO of stablecoin risk intelligence platform Range, told Decrypt.“Cutting the floor from 40% to 20% would roughly halve that drag” for issuers, Monty said, bringing UK stablecoin economics “within striking distance of MiCA and U.S. issuers.” At short-dated gilt yields of about 4%, the proposed split could cost a UK issuer roughly £11.2 million a year for each £1 billion in circulation, he added. The larger risk from holding limits is jurisdictional arbitrage, Monty said, pointing to the possibility that GBP stablecoins could be issued from another market. “The BoE should be asking whether it wants to regulate the most-used GBP stablecoin, or watch it be issued from Dublin,” he said. Still, Monty said the BoE has “a card no other jurisdiction can play” if it moves ahead with a possible liquidity backstop for stablecoin issuers, adding that institutional buyers “price redemption certainty well above a few basis points of yield.”

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