Bank of England Considers Exemptions to Stablecoin Holding Caps

The U.K. central bank reportedly plans to grant exemptions to proposed limits on stablecoin holdings for entities like cryptocurrency exchanges.

Embracing Change and Competition

The Bank of England (BOE) reportedly plans to grant exemptions to proposed limits on stablecoin holdings for entities like cryptocurrency exchanges, which may have to hold large sums of these fiat-pegged assets. The BOE’s apparent change of heart follows widespread criticism of its plans to cap individuals’ and businesses’ stablecoin holdings to $26,695 (£20,000) and $13.4 million, respectively.

According to a Bloomberg report, the BOE’s new plans are an attempt to address concerns raised by crypto industry leaders. After the initial announcement, key figures in the crypto industry slammed the proposals, which they deemed to be more restrictive than the stablecoin frameworks adopted by other major jurisdictions, which have no caps. Critics have argued that this would put the UK at a competitive disadvantage.

By granting exemptions, the BOE removes a hurdle that had the potential to force local firms to move abroad. The proposed exemptions would represent a significant departure from Governor Andrew Bailey’s earlier warnings that stablecoins could undermine public trust in traditional money. He previously preferred a focus on tokenized deposits instead.

Sean Kiernan, CEO of the U.K.’s Greengage, points out that if the U.K. does not act swiftly, it may see a “brain drain” to America, which already offers a stablecoin framework that encourages growth.

Despite the U.K.’s slow adoption, the rise in stablecoin popularity—especially those tied to currencies like the U.S. dollar—highlights a visible gap. Of the estimated $303 billion in stablecoins currently in circulation, only a mere $581,000 are pegged to the British pound, showcasing a tangible hurdle the U.K. must overcome.

Future Prospects Within the Global Context

Meanwhile, hints from Bailey suggest a willingness to create a more conducive environment for stablecoins, positing that they can coexist with current financial systems. By planning to revise its initial regulations and allowing systemic stablecoins to diversify their reserve assets, the BOE aims to provide more opportunities for stablecoins in retail payments.

Industry participants also questioned whether the BOE has the capacity to enforce the limits. Tony McLaughlin, founder of Ubyx Inc., pointed out that while the U.K. is focusing on caution, the U.S. approach prioritizes national interests that bolster its economic standing globally.

As U.K. banks pilot tokenized deposit transactions—an initiative Bailey favors—some experts maintain that this could inadvertently neglect the potential benefits of a stablecoin system that stimulates demand for government debt.

Nevertheless, there remains cautious optimism. Jannah Patchay, founder of Markets Evolution, suggests that well-regulated stablecoins could contribute to vital public borrowing needs in the U.K., providing a chance to firmly establish its standing in the global financial landscape.