BoE proposes changes to systemic stablecoin regime

The Bank of England has scaled back the proportion of reserves that systemic issuers of sterling stablecoins will need to hold in unremunerated accounts at the central bank. 

In proposals announced today (November 10) the BoE said issuers of sterling stablecoins would only need to hold 40% of their reserves at the bank, rather than the previous level of 100%. The remaining 60% could be held in short-term gilts.

However, issuers would be permitted to hold 95% of their reserves in UK government debt in certain scenarios. This would apply to issuers deemed “systemic at launch” or “transitioning from the Financial Conduct Authority regime”, which oversees small retail stablecoin payments.

“Our objective remains to support innovation and build trust in this emerging form of money,” said Sarah Breeden, the bank’s deputy governor for financial stability. “We’ve listened carefully to feedback and amended our proposals for achieving this, including on how stablecoin issuers interact with the Bank of England.” She added that the proposals were “a pivotal step towards implementing the UK’s stablecoin regime next year”. 

The central bank did not define the quantitative criteria by which an issuer would be deemed systemically important. In its proposals, it states that although quantitative thresholds “could be helpful in some circumstances… a single hard quantitative threshold risks sending false market signals”.

The bank said it was also considering providing a backstop during times of market stress “should systemic issuers be unable to monetise their backing assets in private markets”. 

The BoE reiterated its plans for temporary stablecoin limits but said these would be at the upper end of previous proposals – at £10 million ($13.16 million) for businesses and £20,000 per coin for individuals. It said it planned to lift these limits once a transition to the new form of money “no longer poses risks to the provision of finance to the real economy”. 

Under the BoE’s severe stress scenario, demand for central bank lending to commercial banks was modelled to rise to $250 billion without the £20,000 holding limits. This compared with $112 billion when the limits were in place. 

BoE officials said the proposals were in keeping with the rules laid out in the Guiding and Establishing National Innovation for US Stablecoins Act (Genius Act). However, there is still uncertainty around how the US legislation will be implemented. 

The BoE’s proposals do not spell out how non-sterling systemic stablecoins would be treated.