BoE Backs Down Over Stablecoins, Opens Door to Tokenised GBP

The Bank of England has softened its stance on stablecoin reserves in a bid to make business models more “viable,” the move follows a sustained backlash from industry participants and the House of Lords urging the central bank to take a less conservative approach.

The new proposals, published Monday, open the door to Sterling-backed stablecoins next year. The new framework requires stablecoin issuers to hold only 30% of their reserves with the central bank, allowing 70% of their assets to be invested in short-term gilts. The BoE previously suggested a 40/60 ratio.

By tweaking the ratio to allow issuers to earn interest on a bigger part of backing assets, the Bank is allowing the business models of stablecoin companies to become more “viable,” while ensuring that issuers are able to meet outflows.

The Bank also abandoned its proposed limits on ownership, in line with feedback. Instead, policymakers will introduce “temporary guardrails” on issuance as a measure to mitigate risk by capping systemic stablecoins at an initial £40 billion level. While much of the debate focused on the proposed limits, there is currently no sterling-linked stablecoin in existence, making the argument theoretical, for now.

“The framework supports safe innovation, enabling UK issued stablecoins to develop as trusted forms of digital money,” the BoE says. “The change supports more viable business models while still allowing issuers to deal with outflows.”

Earlier this month, the cross-party House of ‌Lords ⁠Financial Services Regulation Committee urged the BoE to abandon its initial proposals as it cited fears about stifling the UK’s competitiveness.

The BoE is set to finalise its Code of Practice by the end of the year, after which the rules will apply to systemic stablecoin issuers. The BoE says it is working closely with UK regulator, the Financial Conduct Authority (FCA) to deliver an end-to-end regime, including a managed transition as firms grow from non-systemic to systemic, promising further details alongside the FCA’s final rules.