The Bank of England has announced a significant move to establish clear regulations for stablecoins in the United Kingdom, aiming to build public trust in this emerging form of digital money. The central bank revealed on Monday that its proposed framework, slated for introduction in 2026, would see UK stablecoins primarily pegged to the British pound.
Pivotal Step for UK's Digital Currency Future
Sarah Breeden, the Bank of England's Deputy Governor for Financial Stability, described the proposals as a pivotal step towards implementing the nation's stablecoin regime next year. Our objective remains to support innovation and build trust in this emerging form of money, Breeden stated. She emphasized that the new rules are designed for a future where stablecoins play a meaningful role in the payments landscape, providing the clarity the industry needs to plan with confidence.
This initiative marks a strategic shift. Currently, the value of most stablecoins—a type of digital currency designed to maintain a stable value—is anchored overwhelmingly to the US dollar. The UK's plan to create a sterling-backed ecosystem is a direct effort to foster a domestic digital currency market.
Key Proposals and Safeguards
The BoE's consultation document outlines several key measures. It proposes allowing systemic stablecoin issuers to hold up to 60 percent of their backing assets in short-term UK government debt. This provides issuers with a familiar and relatively secure asset class for reserves.
To prevent potential disruption to the broader financial system as it adapts to these new digital monies, the Bank is also proposing temporary holding limits. These would be set at £20,000 (approximately $26,370) per coin for individuals and £10 million for businesses, with provisions for larger organisations to hold even higher amounts. The BoE stated that these limits would be removed once the transition no longer poses risks to the provision of finance to the real economy.
A Global Regulatory Push
The urgency for robust stablecoin regulation has intensified globally following the 2022 collapse of the Terra stablecoin, an event that wiped out an estimated $40 billion in investor funds. Unlike the proposed UK stablecoins, Terra was an algorithmic stablecoin, meaning it was not backed by traditional assets like fiat currency, which contributed to its failure.
Analysts point out that risks for stablecoins include an untrustworthy issuer or the persistent threat of hacking. A loss of confidence in a major stablecoin could have ripple effects beyond the crypto world, potentially impacting the real-world assets that back the tokens.
This move by the Bank of England runs parallel to efforts by Britain's Financial Conduct Authority (FCA), which published its own stablecoin proposals in May. The FCA's plans included requirements for firms to safeguard client cryptocurrency holdings, similar to how banks protect customer deposits. The BoE's proposals are now open for a consultation period running until February 10.
