Bank of England Signals Softer Approach to Stablecoins Under New Proposals

The Bank of England on Monday proposed that issuers of widely used stablecoins be allowed to invest up to 60 percent of their reserve assets in government debt, Reuters reported on Nov. 10.

Under the draft rules, expected to take effect next year, the central bank maintained plans to cap the amount of stablecoins that individuals and businesses can hold. The move distinguishes the U.K.’s approach from those of regulators in the United States and the European Union.

Stablecoins are digital tokens designed to maintain a stable value, often pegged to a fiat currency and backed by assets such as government bonds. The Bank’s latest proposal follows criticism of its 2023 plan, which would have required issuers to keep all reserves in non-interest-bearing accounts at the central bank. Industry groups argued that such a rule would make it difficult for issuers to operate profitably.

Under the revised plan, 40 percent of backing assets would still need to be held with the Bank of England. Sarah Breeden, the Bank’s deputy governor for financial stability, said the proposal reflects industry feedback. “We’ve listened carefully to feedback and amended our proposals for achieving this,” she said.

The Bank also outlined a temporary regime for issuers previously supervised by the Financial Conduct Authority, allowing them initially to invest up to 95 percent of reserves. However, caps of £20,000 for individuals and £10 million for businesses remain, with possible exemptions for larger firms.

The consultation, which runs until February 10, also considers allowing central bank liquidity support for systemic stablecoin issuers during market stress.