(Bloomberg) — The Bank of England plans to grant exemptions to proposed limits on stablecoin holdings by businesses, indicating a softening stance toward cryptoassets amid growing competition from the US.
The UK central bank intends to grant waivers to certain firms, such as crypto exchanges that need to hold large amounts of stablecoins, according to a person familiar with the matter.
The BOE will also allow firms to use stablecoins as a settlement asset in its experimental Digital Securities Sandbox, people familiar with the matter said — another sign that Governor Andrew Bailey’s previously skeptical viewpoint is moderating. The BOE declined to comment.
Many in the digital payments industry have voiced concerns to BOE officials, flagging that the UK may struggle to compete with the Trump administration’s Genius Act, which sets rules around dollar-backed stablecoins. The industry is worrying about the BOE’s plan to impose stringent stablecoin caps of as much as £20,000 ($26,965) for individuals and £10 million for businesses. The caps are expected to be outlined in a consultation published by the end of the year, according to people familiar with the matter.
Exemptions to the cap would be seen as a major shift after Bailey previously poured scorn on the assets and the central bank’s digital pound project. Stablecoins threaten to destabilize the public’s trust in money, he warned in July. Bailey hailed the potential of tokenized versions of customer deposits instead.
That tougher posture risks driving firms elsewhere, according to market participants. “America already has a live stablecoin framework, giving issuers the certainty they need to build and scale,” said Sean Kiernan, chief executive of UK-based digital finance platform Greengage. “If the UK dithers for another year, liquidity, talent and investment will flow to New York instead of London.”
Stablecoins — a type of cryptocurrency tied to a traditional currency like the US dollar and backed one-to-one by reserves of highly liquid assets, such as US Treasuries — have risen in popularity over the past year, as large banks and financial technology firms view them as a faster and cheaper alternative to traditional payment rails. They could be used for more than $50 trillion in annual payments by 2030, according to Bloomberg Intelligence.
But of the roughly $303 billion worth of stablecoins in circulation, only $581,000 worth of tokens are pegged to the British pound, according to DefiLlama data, a tangible sign for executives that the UK is falling behind. Euro-pegged coins have a circulation of $468 million.
Bailey last week hinted at a softer approach to stablecoins, saying they could drive innovation and co-exist with the current financial system. This comes after the BOE earlier this year said it will revise its initial proposals to regulate stablecoins. It now plans to allow systemic stablecoins — used for large-scale retail payments — to hold some of their backing assets in certain high-quality instruments, such as short-term government bonds.
The changes to the Digital Securities Sandbox, a testing environment for blockchain issuance and trading, will initially permit firms to adopt regulated stablecoins tied to non-sterling currencies for settlement purposes, one of the people familiar said. This would allow the central bank to observe use cases for stablecoins in the real world as it considers its approach to wholesale usage in more detail, according to another person.
BOE officials have faced fierce push back over the planned stablecoin caps, with the industry warning that any limits on holdings will be difficult to enforce. Tony McLaughlin, founder of stablecoin company Ubyx Inc., said the UK’s strategy is being “driven by health and safety considerations, whereas the US policy is driven by national interest.”
Trump administration officials, including Treasury Secretary Scott Bessent, see the US legislation as a way to shore up the greenback’s role as the world’s reserve currency. Stablecoins, so the consideration goes, could provide additional demand for US Treasuries at a time when traditional buyers are holding back and speculation about the dollar’s position in financial markets is mounting.
UK banks last month launched a pilot to complete live transactions of tokenized deposits, the route favored by Bailey. Tokenized deposits are transferable digital coins that represent a deposit claim on a commercial bank. Industry body UK Finance said those deposits could help reduce fraud and speed up transactions. However, observers warn that the strategy could result in a missed opportunity to spur demand for government bonds at a time of high gilt yields.
Still, there’s optimism that stablecoins could present an opportunity. “If you are the UK government and you need to spend a lot of money in investment and infrastructure and need to do a lot of public borrowing to fund that, why would you not want well-regulated pound stablecoins that can create demand for your debt?,” said Jannah Patchay, founder and director of Markets Evolution, a consultancy advising on policy, strategy and financial innovation.
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