Bank of England Warns Weak Stablecoin Rules Could Trigger a ‘Credit Crunch’
The Bank of England has cautioned that loosening proposed stablecoin rules might threaten monetary stability and set off a credit score crunch, as officers search to steadiness innovation with danger within the transition to digital cash.
Deputy Governor Sarah Breeden said the U.Okay. faces a “completely different set of dangers” from the United States because it integrates stablecoins into its monetary system. “We need to handle these fastidiously as we convey on this new type of cash,” she instructed Reuters on Tuesday.
The feedback adopted the bank’s release of a long-awaited consultation outlining a regulatory framework for systemic stablecoins, tokens anticipated to be broadly used for funds.
Bank of England proposes £20,000 particular person restrict on systemic stablecoin holdings to handle transition dangers, however faces pushback from crypto business over restrictive strategy.#England #UK #Stablecoinhttps://t.co/4unfE0HurD
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The plan consists of momentary holding caps of £20,000 ($26,000) for people and £10 million ($13 million) for companies, alongside a requirement for issuers to maintain 40% of their reserves on the central financial institution in non-interest-bearing accounts.
Will the U.Okay.’s Stablecoin Limits Prevent a Credit Crunch — or Create One?
Breeden mentioned the measure is designed to scale back stress on banks from deposit outflows into stablecoins. “Look at what occurred with SVB and Circle; these numbers are broadly in keeping with that,” she mentioned, referring to USDC’s depeg in 2023 after $3.3 billion of its reserves have been trapped at Silicon Valley Bank.
Officials worry that large-scale transfers of deposits from industrial banks into stablecoins might weaken banks’ lending capability, resulting in a credit score crunch that might elevate borrowing prices and sluggish progress.
Governor Andrew Bailey recently warned that such outflows might trigger “a precipitous drop in credit score for companies and households.”
The proposed limits mark a softer stance than the Bank’s 2023 plan, which might have required stablecoin issuers to carry all reserves on the BoE. Still, the crypto business says the present model stays overly restrictive.
— Cryptonews.com (@cryptonews) October 1, 2025
Coinbase govt Tom Duff Gordon called the bounds “unhealthy for UK savers, unhealthy for the City, and unhealthy for sterling,” including that “no different main jurisdiction has deemed caps essential.”
Industry teams additionally questioned how such limits could possibly be enforced with out real-time monitoring or digital ID methods. Simon Jennings, head of the UK Cryptoasset Business Council, mentioned, “Limits merely don’t work in observe.”
The Bank’s session comes because the U.K. seeks to keep pace with U.S. developments. Earlier this 12 months, President Donald Trump signed the GENIUS Act, establishing a federal stablecoin regime with out possession caps.
Breeden mentioned Britain is “shifting simply as rapidly” and expects to finalize its framework in 2026.
UK Eyes Global Stablecoin Leadership with New BoE-FCA Oversight Blueprint
Under the U.Okay.’s dual-tier system, the BoE will oversee systemic fee stablecoins, whereas the Financial Conduct Authority (FCA) regulates non-systemic ones used primarily in buying and selling.
Issuers will likely be required to deposit half of their reserves with the central financial institution, incomes returns on the rest by means of short-term authorities securities.
The initiative displays rising authorities curiosity in blockchain modernization. In September, Chancellor Rachel Reeves and U.S. Treasury Secretary Scott Bessent agreed to deepen transatlantic cooperation on crypto oversight.
The UK and US have launched the Transatlantic Crypto Task Force to coordinate digital asset regulation and capital markets coverage. #Crypto #UK #US https://t.co/3oVXOws8mq
— Cryptonews.com (@cryptonews) September 22, 2025
London has additionally launched a Digital Securities Sandbox, the place companies together with HSBC, J.P. Morgan, and the London Stock Exchange Group plan to problem regulated stablecoins and digital gilts.
However, disagreements persist between the Bank and Treasury over how strict the principles needs to be.
Reform UK chief Nigel Farage called the BoE’s proposed limits “frankly ridiculous,” pledging to chop crypto capital positive aspects tax to 10% and set up a £5 billion Bitcoin reserve if elected.
The international stablecoin market has now surpassed $312 billion, dominated by dollar-backed tokens from Tether and Circle, whereas sterling-based stablecoins stay beneath £600,000 in circulation.
Despite their restricted footprint, officers say stablecoins might quickly play a key function in home and cross-border funds as regulation takes form.
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