Key Highlights
- The Bank of England has set a definitive timeline to introduce a regulatory framework for stablecoins by the end of 2026
- The proposed framework mandates that stablecoin issuers must back their coins primarily with high-quality, short-term government bonds
- The Bank of England will exempt crypto exchanges and settlement firms from the initial proposed holdings caps
While countries like the U.S. are adopting stablecoins to boost their USD dominance, the Bank of England is also now preparing to integrate stablecoins into the mainstream financial system.
According to the latest report, the Bank of England plans to introduce a full set of regulations for these digital currencies by the end of 2026. By introducing a clear regulatory framework, the country wants to manage the risks that come with stablecoins.
The cumulative market capitalization of stablecoin currently revolves around $307.31 billion, according to DefiLIama.
The proposed UK framework is modeled closely on guidelines from the United States. The core of the plans requires companies that issue stablecoins to hold very safe and liquid assets to back the value of their coins.
Specifically, these reserves must be primarily high-quality, short-term government bonds that mature in less than three months. This approach is designed to ensure that people can always exchange their stablecoins for real currency. This will ensure that the digital currency is fully pegged to its underlying assets.
This rule would also allow a small portion of the reserves to earn interest, which could encourage more companies to issue sterling-based bonds and create more demand for UK government debt.
Bank of England’s Public Consultation to Begin on November 10
A public consultation on the proposed rules is set to begin on November 10. The Bank of England will gather feedback from the financial industry, technology firms, and consumer groups. This process will help finalize the regulations.
The central bank’s strategy also addresses earlier concerns from the industry about proposed limits on how much stablecoin individuals and businesses could hold. Those initial caps were intended to prevent a large, rapid movement of money out of traditional bank accounts.
The Bank of England has also indicated that exemptions will be made for crypto exchanges and settlement firms. Deputy Governor Sarah Breeden stated that any initial limits would be lifted once the associated risks are properly managed.
This method will enable authorities to boost innovation in the digital asset sector without threatening the stability of the wider financial system.
Currently, stablecoins linked to the British pound contribute a very small part of the market. This regulatory development will also help the country to create alternatives for its digital payment system while countering the overwhelming dominance of the USD.
GENIUS Act Approval Allows Major Banks to Enter the Stablecoin Arena
After the U.S. President Donald Trump approved the first legislation for stablecoin after signing the GENIUS Act. The world’s major financial institutions are moving quickly to launch their stablecoin projects.
They see these stablecoins as key to enabling faster and cheaper international payments and for use in tokenizing real-world assets like stocks and bonds.
JPMorgan Chase, the biggest bank in the world by market value, is a major player in this latest trend. In June, the bank filed a trademark for “JPMD,” a digital token that would function much like a stablecoin for its institutional clients.
JPMorgan’s CEO, Jamie Dimon, was once a critic of cryptocurrencies. However, in an earnings call, he confirmed the bank would deepen its involvement with stablecoins to compete with financial service rivals.
In October, a group of major global banks, including giants like Citibank, Goldman Sachs, and Bank of America, announced that they are exploring the creation of a joint stablecoin.
Meanwhile, in Europe, officials are watching this trend with caution. European Central Bank President Christine Lagarde has warned that the widespread use of USD-pegged digital currencies could damage the euro’s role and threaten Europe’s monetary sovereignty.
Pierre Gramegna, Managing Director of the European Stability Mechanism (ESM), also said that, “Europe should not be dependent on US dollar-denominated stablecoins, which are currently dominating markets. Stablecoins are an inevitable part of this equation!
Source: https://www.cryptonewsz.com/bank-of-england-stablecoin-regulation-2026/
