Bank of England Gets Duty to Champion Stablecoin Innovation

The Bank of England has been given a new mandate by HM Treasury to support innovation in payment systems and emerging forms of digital money, including stablecoins. This comes after the Bank's earlier proposals would have capped individual holdings at £20,000 and business holdings at £10 million per coin, but industry respondents pushed back hard against these limits.

The new secondary objective will sit below the Bank's financial stability objective and won't require it to support innovation where doing so would undermine stability. The £40 billion guardrail is still a ceiling, and issuers will have to redeem coins at par value with redemption orders executed as soon as practicable and by the end of the next business day after receipt.

The Bank's draft rules also require systemic issuers to hold up to 70% of backing assets in short-term UK government debt with maturities of six months or less, while at least 30% must sit as unremunerated deposits at the Bank of England. A step-up approach will allow stablecoins recognised as systemic at launch to hold up to 95% in sterling government debt while scaling before moving toward the 70% steady-state limit.

The timing is not accidental, as the United States has already passed the GENIUS Act and the EU's MiCA rules are in force. If sterling stablecoin infrastructure gets built around dollar rules in New York or euro rules in Frankfurt, London will not win it back with a warmer consultation paper later.