The Bank of England (BoE) has clarified that its proposed limitations on stablecoin holdings for individuals and businesses are intended to be temporary, with the aim of safeguarding financial stability during the nascent stages of stablecoin adoption. Deputy Governor Sarah Breeden stated on Wednesday that these measures would be lifted once the threat to the economy diminishes.
The central bank's initial proposals included caps of £10,000 to £20,000 for individuals and £10 million for businesses. These limits sparked concerns within the crypto industry, with many arguing they could hinder the UK's competitiveness in the global crypto finance arena. Industry figures also criticized the plans as unworkable.
Breeden explained that the rapid adoption of stablecoins could trigger significant outflows of deposits from traditional banks, potentially restricting credit availability for businesses and households. To mitigate this risk, the BoE is considering various tools, including limits on customer holdings, aggregate limits on coin size, and transaction size restrictions. However, she emphasized that these measures are designed to be temporary.
In response to industry concerns, the BoE is planning exemptions to its proposed limits on stablecoin holdings. Certain firms, such as crypto exchanges that require large stablecoin reserves, will be granted waivers. Furthermore, the central bank will permit the use of stablecoins for settlement within its Digital Securities Sandbox. This move is seen as a sign of Governor Bailey's softening stance on crypto asset regulation.
Bailey had previously expressed skepticism about stablecoins, highlighting potential risks to financial stability. However, he recently acknowledged their potential to drive innovation in payment systems. In an opinion piece, Bailey stated that it would be "wrong" to oppose stablecoins as a matter of principle, recognizing their potential in driving innovation in payments systems both at home and across borders. He emphasized the importance of ensuring that stablecoins meet the conditions necessary to maintain public trust.
The BoE's approach reflects a balancing act between fostering innovation and managing potential risks. By implementing temporary limits and granting exemptions, the central bank aims to create a more stable environment for stablecoin adoption while allowing businesses to explore their potential benefits. The situation remains fluid, and the regulatory landscape is expected to evolve rapidly in response to market developments and technological advancements. The proposed caps are expected to be detailed in a consultation later this year.
