The Bank of England has eased some of its proposed regulatory restrictions on the stablecoin market in its final policy statement and draft rules issued on Monday, in a move that reflects a delicate balancing act between supporting financial innovation and preserving monetary stability within the United Kingdom.
The revisions came following mounting criticism and concerns that the previous rules could stifle the growth of sterling-linked stablecoin markets, at a time when the global financial sector is witnessing rapid expansion in the use of digital assets for payments and transfers.
Under the new amendments, the Bank of England stepped back from the idea of imposing a cap on individual holdings of stablecoins, opting instead to impose a total issuance limit per stablecoin, which had initially been proposed at 40 billion pounds sterling. This reflects a shift in the approach to risk management away from directly restricting individual use.
The amendments also included a further easing on backing assets, with the proportion of assets that can be held in short-term government bonds raised from 60% to 70%, while issuers are required to hold the remainder in deposits at the central bank bearing no returns — a measure intended to ensure stable liquidity.
Sarah Breeden, Deputy Governor of the Bank of England for Financial Stability, confirmed that this step represents significant progress towards fostering innovation in payment systems within Britain, noting that building trust in this type of digital money is a prerequisite for expanding its use.
At the same time, the central bank continues to warn of the potential risks associated with stablecoins, chief among them the possibility of drawing deposits away from the traditional banking system, which could in turn affect banks' lending capacity and the cost of credit.