The Bank of England (BoE) has experienced a profound reality check, signaling a tactical retreat from its previously uncompromising regulatory stance on pound-denominated systemic stablecoins. This shift follows severe backlash from major digital asset market participants and legal experts, who warned that the proposed framework would fundamentally cripple the economic viability of UK-issued tokens and permanently damage the nation's financial competitiveness.
In its initial consultation paper released in late 2025, the BoE detailed a highly conservative environment designed to mitigate deposit disintermediation from commercial banking systems. The central bank sought to impose stringent temporary holding limits—specifically capping individual stablecoin holdings at £20,000 and business accounts at £10 million. Furthermore, it introduced a punitive prudential requirement demanding that stablecoin issuers back at least 40% of their digital liabilities with non-interest-bearing cash deposits held directly at the central bank.
The industry's reaction was swift and merciless. Prominent global cryptocurrency enterprises, including industry leaders like Coinbase, aggressively countered these mandates. They pointed out that such rigid holding caps are operationally cumbersome to police across multi-chain public frameworks and completely unfeasible for institutional treasury management, cross-border settlements, or corporate payroll infrastructure. Moreover, enforcing zero-interest backing rules completely decimates the profit margins of prospective issuers, who rely heavily on yield-generating backing assets to maintain operational cash flows. Industry lobbyists made it clear that if the UK proceeded with these archaic, overly restrictive guardrails, issuers would simply flock to more accommodating jurisdictions like the European Union under MiCA, or the United States, leaving the British Pound entirely out of the global digital money race.
Acknowledging the friction, BoE Deputy Governor Sarah Breeden publicly stated that the central bank is actively reviewing alternatives to these temporary restrictions and evaluating whether its 40% non-interest deposit mandate is excessively conservative. This pivot indicates that the BoE is finally waking up to the realities of open-loop, tokenized finance. While safeguarding financial stability remains a primary institutional directive, the central bank cannot afford to regulate in a vacuum. A more flexible and progressive approach to stablecoin reserves and ownership parameters will ultimately dictate whether a regulated systemic sterling stablecoin ecosystem can genuinely scale, or whether it will be obsolete upon arrival.
Source : cointelegraph.com