“It was based on experience of potential liquidity stress,” Breeden said. “But we will look hard to see if we have been overly conservative in our thinking there.”
The central bank is “looking very hard at whether there are different ways we can manage what we think is an important risk as stablecoins come into play,” Breeden said.
Stablecoins are crypto tokens designed to track the value of fiat currencies such as the dollar or pound, often by holding reserves in cash, government debt, or similar assets. In the UK, oversight has been split: the FCA is expected to supervise non-systemic issuers, while the Bank of England would regulate stablecoins widely used for payments.
‘Important signals’“These are important signals from the Bank of England that it is prepared to revisit its stablecoin proposals,” Katie Haries, Coinbase’s head of policy for Europe, told Decrypt. “We’ve said for a long time that a cap on stablecoin holdings is a cap on innovation, with real and significant risks for UK competitiveness.”
The Deputy Governor said that the Bank wants to create a regime where stablecoins can succeed and “deliver benefits to the users,” Haries noted. “This is exactly the right ambition, and what the crypto asset industry and every day people are asking for.”
“Cutting the floor from 40% to 20% would roughly halve that drag” for issuers, Monty said, bringing UK stablecoin economics “within striking distance of MiCA and U.S. issuers.” At short-dated gilt yields of about 4%, the proposed split could cost a UK issuer roughly £11.2 million a year for each £1 billion in circulation, he added.
The larger risk from holding limits is jurisdictional arbitrage, Monty said, pointing to the possibility that GBP stablecoins could be issued from another market.
“The BoE should be asking whether it wants to regulate the most-used GBP stablecoin, or watch it be issued from Dublin,” he said.
Still, Monty said the BoE has “a card no other jurisdiction can play” if it moves ahead with a possible liquidity backstop for stablecoin issuers, adding that institutional buyers “price redemption certainty well above a few basis points of yield.”
