Bank of England Deputy Governor Sarah Breeden has made it clear that the central bank's plan to limit stablecoin holdings and transaction size will only be a short lived measure to make sure stability within the economic system.
The proposed limits for stablecoins were first presented in a November 2023 discussion paper as a way of ensuring financial stability. As the plans advanced, industry groups lashed out in September, arguing they’d stifle innovation and limit growth.
However, speaking at DC Fintech Week on Wednesday, Breeden said the boundaries were intended only as a short lived stopgap that can be eliminated since the bank ultimately desires to “support the role of stablecoins as a part of a multi-money system.”
Breeden said the measures would allow “the structure of real economy financing to adapt to stablecoins” and make sure the bank can “monitor the adoption of stablecoins and assess the potential for rapid changes within the structure of the economic system.”
“Let me be clear: we expect restrictions to be lifted as soon as we see that the transition not threatens the supply of finance to the true economy.”
Industry groups widely criticized the proposed limits, which previously ranged from $13,429 to $26,858 (£10,000 and £20,000), arguing they’d also signal to the broader industry that the UK just isn’t a crypto-friendly jurisdiction and drive corporations away.
Source: Ryan Adams
The stablecoin rules should not yet set in stone
Breeden said the BOE will launch a consultation before the tip of the yr, looking for feedback on the boundaries and a path to implementation.
“We can be consulting on the small print of our proposed rule for sterling stablecoins utilized in systemic payment systems in the approaching weeks, and we can be open to feedback as we finalize our rules,” she said.
A current proposal includes the next limit for businesses and an exemption for supermarkets and other large businesses.
A spin-off of corporations operating within the country's digital sandbox, which launched in October 2024 as a testing ground for digital ledger technology, can be being discussed.
The fearful banking system cannot sustain with stablecoins
According to Breeden, the BOE's fundamental concern is that rapid outflows from banks into stablecoins may lead to a “steep decline in credit to businesses and households” if the system cannot sustain and grow at a big scale and pace.
The focus, she said, was on ensuring the economic system had time to progressively adjust, which was “a hugely necessary issue within the UK as lending here is more reliant on banks than, for instance, within the US”.
“Our start line is that placing limits on a user’s holdings of a specific systemically necessary stablecoin is the very best approach to avoid such a drastic reduction in credit availability for UK borrowers.”
The central bank desires to remain the only settlement agent for asset markets
At the identical time, Breeden said she believes large payments and settlements in asset markets remain the domain of the central bank to avoid “unnecessary interconnections within the economic system” and potentially stability risks.
However, she also noted that central bank-backed money just isn’t currently used for all settlements anyway, and predicted that this can not be the case in the long run either, as it is going to likely play a task within the tokenized markets for tokenized deposits and controlled stablecoins.
“However, we cannot do that alone. We need the industry – each established and latest entrants – to work with us to interact, experiment, develop use cases and deploy this technology,” Breeden added.
