Key Points
- The Bank of England is defending its new, strict rules for stablecoins.
- Deputy Governor Sarah Breeden warned that weaker rules could risk financial stability and cause a credit crunch.
- The new rules include a 20,000-pound holding limit for individuals and require issuers to hold 40% of backing assets at the central bank.
- The BoE says these measures are necessary to protect the UK’s bank-dependent credit system.
Bank of England Deputy Governor Sarah Breeden warned on Tuesday that weakening the rules governing stablecoins could put financial stability at risk and trigger a credit crunch. She also emphasized that the UK needs a different approach to regulating these digital tokens than the United States.
On Monday, the Bank of England (BoE) released new rules for “systemic stablecoins”—digital tokens designed to maintain a stable value and used for payments. While the new rules were a softer version of the bank’s earlier proposals, the crypto industry argued they still didn’t go far enough and could hurt the growth of stablecoins in Britain.
The new rules include a limit on how many stablecoins a person can hold, set at 20,000 pounds ($26,840), a restriction not seen in other major countries. They also require stablecoin issuers to hold 40% of the assets backing the coins with the BoE, where they won’t earn any interest.
In an interview with Reuters, Breeden defended the 40% requirement, saying it was “grounded” in past financial crises, like the 2023 collapse of Silicon Valley Bank and the moment when the USDC stablecoin lost its dollar peg. She said the numbers were “broadly in line” with what was seen during those events.
Breeden also stood by the 20,000-pound limit for individuals, calling it a temporary measure that would “halve the stress” on banks and credit creation. She explained that in the UK, about 85% of mortgages and other consumer loans come from banks, so if too many people withdraw their money from banks to buy stablecoins, it could severely impact the economy.
The BoE’s latest proposals are a change from a 2023 plan that would have required issuers to hold 100% of their backing assets at the central bank. The industry had argued that this would have made the stablecoin business impossible.
Breeden said the Bank is open to more feedback, and the new rules will be finalized next year, in line with the United States. She also noted that “more work to do” is needed to ensure people in the UK know which stablecoins, especially those from jurisdictions like El Salvador, are safe and which are not.
