According to Financial Times News, the Bank of England is pushing ahead with controversial ownership limits on UK stablecoins while partially backing down to industry pressure. Individuals will be capped at holding £20,000 worth of systemically important stablecoins, while most businesses face a £10 million limit. However, retail businesses like supermarkets and crypto trading platforms will be exempt from the business restrictions. The central bank announced these proposals on Monday in a consultation paper that also revealed stablecoin issuers would need to hold 40% of their backing assets in unremunerated deposits at the BoE. The remaining assets would be held in short-term UK government debt, and the bank is considering central bank liquidity arrangements to support systemic stablecoin issuers during stress periods.
The Regulatory Tightrope Walk
Here’s the thing about stablecoin regulation – everyone wants the stability without the restrictions. The Bank of England is basically trying to thread a needle here. They’re acknowledging that stablecoins could become systemically important while trying to prevent a potential run on these digital assets. But the exemptions tell the real story. They know they can’t strangle the crypto ecosystem in its crib, so exchanges and retail businesses get a pass. It’s a classic regulatory dance – impose controls where you can without killing innovation entirely.
The 40% Problem
Now let’s talk about that 40% requirement for backing assets. Unremunerated deposits at the central bank? That means these stablecoin issuers are essentially parking nearly half their reserves in accounts that earn zero interest. That’s a massive operational cost that will inevitably get passed along to users. And the rest in short-term UK government debt? It’s conservative, sure, but it raises questions about yield and flexibility. How many stablecoin projects can actually operate profitably under these constraints? Probably not many startup operations – this feels like a framework designed for big, established players.
Managing Systemic Risk vs Practical Reality
The £20,000 individual limit seems almost arbitrary, doesn’t it? For most crypto traders, that’s pocket change. But for the average person, it’s more than enough. The real story is the business exemptions. The Bank of England clearly recognizes that you can’t have functional crypto markets if exchanges can’t hold sufficient stablecoin reserves. It’s like trying to run a bank but limiting how much cash you can keep in the vault. The exemptions show regulators are learning – slowly – that you need to understand how these markets actually work before dropping regulatory hammers.
The Implementation Challenge
So what happens now? This is just a consultation paper, meaning there’s room for pushback and changes. But the direction is clear – the UK wants to be a crypto hub while maintaining traditional financial controls. The liquidity backstop proposal is interesting though. If the Bank of England becomes the lender of last resort for stablecoins, that’s a huge step toward legitimizing them as financial instruments. But it also creates moral hazard. Basically, we’re watching traditional finance and crypto slowly, painfully merge. And like any merger, there’s going to be plenty of friction along the way.
