Sarah Breeden, Deputy Governor of the Bank of England, has emphasized that the central bank’s strategy to limit stablecoin holdings and transaction sizes will be only a temporary measure aimed at maintaining financial stability.
The initial proposal for restricting stablecoins was introduced in a November 2023 discussion paper as a way to safeguard financial stability. However, as the plan evolved, industry groups reacted negatively in September, asserting that these limits would hinder innovation and restrict growth.
In a speech at DC Fintech Week on Wednesday, Breeden stated that the restrictions were meant to serve as a temporary measure, which will eventually be lifted as the bank aims to “support a role for stablecoins as part of a multi-money system.”
Breeden explained that these measures would facilitate the “structure of real-economy financing to adjust” to stablecoins and enable the bank to “monitor the adoption of stablecoins and evaluate the potential for swift changes in the financial system’s structure.”
“So let me be clear. We would expect to remove the limits once we see that the transition no longer threatens the provision of finance to the real economy.”
Industry representatives widely criticized the suggested limits, which were initially proposed to be between $13,429 and $26,858 (10,000 and 20,000 British pounds), claiming they would convey to the broader industry that the UK is not a crypto-friendly jurisdiction and could deter businesses.
Stablecoin rules are not set in stone yet
Breeden announced that the BOE plans to initiate a consultation before the year’s end, seeking input on the limit levels and a path for implementation.
“We will be consulting in coming weeks on the detail of our proposed regime for sterling stablecoins used in systemic payment systems, and we’ll be open to feedback as we finalize our rules,” she stated.
One idea being discussed is a higher limit for businesses alongside an exemption for supermarkets and other large firms.
A potential exemption for companies participating in the country’s digital sandbox, launched in October 2024 as a testing ground for digital ledger technology, is also under consideration.
Bank worried system can’t keep up with stablecoins
According to Breeden, the main concern of the BOE is that swift outflows from banks into stablecoins could result in a “precipitous drop in credit for businesses and households” if the system is unable to adapt seamlessly and quickly.
She emphasized that it is crucial for the financial system to have adequate time to adjust gradually, as this is a “critically important issue in the UK, where credit relies more heavily on banks compared to, for example, the situation in the US.”
“Our starting point is that applying limits to a user’s holdings of a given systemic stablecoin is the best way to avoid such a precipitous reduction in the availability of credit to UK borrowers.”
Central bank wants to remain as only settlement for asset markets
Breeden also expressed her belief that wholesale payments and settlements in asset markets should remain the prerogative of the central bank in order to prevent “unnecessary interconnections in the financial system,” which could pose stability risks.
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However, she noted that central bank-backed money is not currently used for all settlements and likely won’t be in the future, as tokenized markets may include roles for tokenized deposits and regulated stablecoins.
“We can’t, though, do this alone. We need the industry — both incumbents and new entrants — to work with us to engage, to experiment, to develop the use cases, and to deploy this technology,” Breeden added.
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