Bank of England eases ‘overly conservative’ stablecoin plans amid industry pressure

The Bank of England is reconsidering key parts of its proposal Stable coin rules, easing pressure after industry opposition over planned limits on property and reserve requirements.

Sarah Breeden, Deputy Governor of the Bank of England for Financial Stability, said: Financial Times On Thursday, officials were considering other ways to contain risks associated with stablecoins as the sector grows.

“This was based on the experience of potential liquidity stresses,” Breeden said. “But we will look hard to see whether we are being overly conservative in our thinking there.”

Breeden noted that the reserve proposal is based on the liquidity pressures seen during recent bank runs, including the sovereign debt crisis. Deposit withdrawals from Silicon Valley Bank in 2023. It also acknowledged that the industry would prefer to hold more interest-earning assets.

The central bank is “looking very seriously at whether there are different ways in which we can manage what we think is an important risk with the emergence of stablecoins,” Breeden said.

These statements came a day after Sasha Mills, Executive Director of Financial Markets Infrastructure at the bank, said: He said in Financial Times Digital Assets Summit said the bank is treating stablecoins as a “new form of money” and expects to accept applications from systemic stablecoin issuers by the end of the year.

During the same week, Bank of England Governor Andrew Bailey to caution of the upcoming clash with the US over stablecoin standards, arguing that weaker redemption rules for dollar tokens could lead to pressure on the UK during the crisis.

Stablecoins are crypto-tokens designed to track the value of fiat currencies such as the dollar or pound, often by holding cash reserves, government debt, or similar assets. In the UK, oversight is split: the Financial Conduct Authority (FCA) is expected to supervise non-regulated issuers, while the Bank of England will regulate stablecoins widely used for payments.

“Important signals”

The Bank of England’s recent comments appear to move its plan for a stablecoin from… A model with hard limits Towards a more flexible system based on liquidity, recovery, and precautionary guarantees for issuers.

“These are important signals from the Bank of England that it is ready to reconsider its proposals for stablecoins,” said Katie Harries, Coinbase’s head of policy for Europe. Decryption. “We have long said that the cap on stablecoin holdings is the cap on innovation, with real and significant risks to UK competitiveness.”

The deputy governor noted that the bank wants to create a system in which stablecoins can succeed and “provide benefits to users,” Harris noted. “This is exactly the right ambition, and what people in the crypto asset industry are asking for every day.”

Under the Bank of England’s proposed reserve split, UK stablecoin issuers would receive a return on just 60% of their reserves, compared with Circle holding around 88% of its reserves. US dollars Reserves are in Treasuries and repurchase agreements, said Andres Monti, CEO of stablecoin risk intelligence platform Range Decryption.

“Reducing the threshold from 40% to 20% would roughly cut that drawdown in half” for issuers, putting the UK stablecoin economies “in close proximity to MiCA and US issuers,” Monty said. At short-term gold bond yields of around 4%, the proposed split could cost the UK issuer around £11.2 million a year for every £1 billion traded, he added.

The biggest risk of holding limits is jurisdictional arbitrage, Monti said, pointing to the potential for sterling-denominated stablecoins to be issued from another market.

“The Bank of England should question whether it wants to regulate the most widely used stablecoin sterling, or watch it issued out of Dublin,” he said.

However, Monty said the Bank of England has “a card that no other jurisdiction can play” if it goes ahead with providing potential liquidity support to stablecoin issuers, adding that institutional buyers have “certainty in price recovery much higher than a few basis points of yield.”