Bank of England Deputy Governor Sarah Breeden has clarified that the central bank’s plan to restrict stablecoin holdings and transaction size will only be a temporary measure to ensure stability in the financial system.
The proposed limits on stablecoins were first floated in a November 2023 discussion paper as a means to ensure financial stability. As plans progressed, industry groups lashed out in September, arguing that it would stifle innovation and limit growth.
However, in a speech at DC Fintech Week on Wednesday, Breeden said the limits were intended only as a temporary stopgap, which will be removed as the bank ultimately wants to “support a role for stablecoins as part of a multi-money system.”
Breeden said the measures will allow the “structure of real-economy financing to adjust” to stablecoins and ensure the bank can “monitor adoption of stablecoins and assess the potential for rapid changes in the structure of the financial system.”
“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.”
Industry groups widely criticized the proposed limits, previously floated to be between $13,429 and $26,858 (10,000 and 20,000 British pounds), arguing it would also signal to the wider industry that the UK isn’t a crypto-friendly jurisdiction and drive away businesses.
Stablecoin rules are not set in stone yet
Breeden said the BOE is launching a consultation before the end of the year, asking for feedback on the limit levels and a path for implementation.
“We will be consulting in coming weeks on the detail of our proposed regime for sterling stablecoins used in systemic payment systems, and we’ll be open to feedback as we finalize our rules,” she said.
One proposal being floated is a higher limit for businesses and an exemption for supermarkets and other large companies.
A carveout for companies operating in the country’s digital sandbox, launched in October 2024 as a testing ground for digital ledger technology, is also being discussed.
Bank worried system can’t keep up with stablecoins
The BOE’s main concern, according to Breeden, is that rapid outflows from banks into stablecoins could lead to a “precipitous drop in credit for businesses and households,” if the system couldn’t keep up, and increase, at scale and at pace.
The focus, she said, is ensuring the financial system has time to gradually adjust, which is a “critically important issue in the UK given credit here relies more heavily on banks compared to, for example, the position in the US.”
“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.”
Central bank wants to remain as only settlement for asset markets
At the same time, Breeden said it’s her view that wholesale payments and settlements in asset markets remain the domain of the central bank to avoid “unnecessary interconnections in the financial system,” and possibly stability risks.
However, she also pointed out that central bank-backed money is not currently used for all settlements anyway and predicted it won’t be in the future either, as there will likely be a role in tokenized markets for tokenized deposits and regulated stablecoins.
“We can’t, though, do this alone. We need the industry - both incumbents and new entrants - to work with us to engage, to experiment, to develop the use cases, and to deploy this technology,” Breeden added.