- The Bank of England scrapped planned individual stablecoin holding limits (£20K for individuals, £10M for businesses) in favor of a cleaner £40 billion total issuance cap per stablecoin — roughly equivalent in financial stability terms but far simpler for issuers to administer, with the cap set to be gradually raised and eventually removed.
- Backing asset terms improved: issuers can now hold 70% short-term interest-bearing gilts and 30% unremunerated central bank reserves (up from a 60:40 gilt/reserves split), allowing better financial returns while the 30% BOE reserves floor is locked in to ensure liquidity in a run scenario.
- The BOE expects roughly three dominant sterling stablecoins to emerge at ~£40B each — totaling ~£120B, or about 2.5% of the £5 trillion in UK customer bank deposits — with the new regime scheduled to be in place by early 2027, driven by urgency to compete with the US dollar-backed stablecoin market (>90% of global supply).
- Stablecoins under this framework are treated as cash equivalents, not savings: they cannot pay interest, users can only earn spending-based rewards (like a loyalty card), redemption to cash must be available within one day, and they carry no protection under the £120K UK bank deposit guarantee scheme.
What Happened?
The Bank of England published a new draft code of practice for systemic sterling stablecoins, replacing its 2025 provisional guidance with a significantly more commercially friendly framework. The most notable change: scrapping per-user holding limits in favor of a £40 billion total issuance cap per coin. The BOE also improved the economics for issuers by allowing 70% of backing assets to be held in interest-bearing short-term gilts — up from 60% under the prior proposal — while the remaining 30% must sit in unremunerated reserves held directly at the BOE as a liquidity backstop. The regime is targeting implementation by early 2027. Coinbase’s head of European policy called it “among the strongest stablecoin regimes in the world,” while Fireblocks’ Varun Paul praised the structural simplification but flagged the 30% non-interest-bearing reserves requirement as a competitive disadvantage relative to US rules.
Why It Matters?
The UK is racing against the clock. Dollar-backed stablecoins account for more than 90% of the global stablecoin market, and landmark US legislation backed by the Trump administration — which sees dollar stablecoins as a tool to sustain demand for US Treasuries and reinforce dollar dominance — is accelerating mainstream adoption. Coinbase, JPMorgan, and other major financial institutions are already moving into dollar stablecoins; without a credible sterling framework, the UK risks becoming a passive user of dollar-denominated digital money rather than a sovereign issuer. The BOE’s core concern is deposit flight: if sterling stablecoins scale rapidly, deposits could shift out of UK banks — which fund a large share of their lending from deposits, unlike the US — crimping credit supply and potentially slowing growth. The 2.5%-of-deposits sizing reflects an attempt to thread the needle between enabling innovation and preserving financial stability.
What’s Next?
The BOE’s framework heads into final consultation before the planned early-2027 implementation. Industry attention will focus on whether the 30% central bank reserves requirement is relaxed further — Fireblocks and others argue it puts UK issuers at a structural disadvantage. Separately, the BOE and UK Treasury are expected to release an update on “Britcoin” — the UK’s Central Bank Digital Currency project — later this year, which will run parallel to the stablecoin framework as a complementary form of digital money. Commercial banks are also developing tokenized deposit products that pay interest, potentially creating a three-way competition between stablecoins, CBDCs, and tokenized bank money for the future of digital payments.
Source: Bloomberg
