Bank of England sets £40bn cap, eases sterling stablecoin rules

The Bank of England on June 22 removed proposed per‑wallet limits on sterling stablecoins, introduced a £40 billion ceiling on the supply of any single systemic pound‑denominated stablecoin in the UK, and relaxed rules on the composition of reserves backing those coins. Households and businesses may hold unlimited balances of a regulated pound stablecoin; the £40 billion limit applies to the total supply of each coin judged systemic in the UK.

Under the revised framework the central bank reduced the share of backing that must be held as unremunerated deposits at the Bank and raised the allowed share of interest‑bearing short‑dated UK government debt. The earlier draft required systemic issuers to keep 40% of reserves as central bank deposits and 60% in short‑term gilts. The new rules cut the deposit requirement to 30% and permit up to 70% of reserves in short‑dated gilts. Coins designated systemic at launch may initially hold a higher gilt share-around 95%—and scale that share down as they grow.

The Bank said the cap and reserve rules are intended to limit the risk of deposit flight, where households and firms move large balances out of bank accounts into stablecoins, which could reduce banks’ low‑cost funding and their capacity to lend. The policy statement said the Bank expects to review the £40 billion limit and lift it when it is satisfied the risks to credit provision are managed.

The removal of per‑wallet limits followed pressure from industry and lawmakers. A cross‑party House of Lords committee said wallet‑level limits diverged from global practice and were difficult to enforce across wallets and exchanges. Stablecoin issuers argued that per‑user caps would prevent commercial and cross‑border uses such as posting collateral and wholesale settlement.

Some payments and banking executives warned that a capped sterling stablecoin with constrained reserve economics could be less commercially attractive than dollar or euro tokens, which do not face a hard ceiling in their home jurisdictions and operate with deeper liquidity.

Sterling tokens account for about 0.5% of a global stablecoin market valued at roughly $315 billion. About 98% of stablecoins in circulation are denominated in US dollars.

Domestic demand presents obstacles. UK retail transfers are already fast and free through Faster Payments, reducing consumer incentives to switch to a pound stablecoin. Merchants are likely to adopt tokens only if they reduce fees or improve settlement. For international firms, dollar‑denominated tokens currently offer deeper liquidity and a larger addressable market.

The Bank has kept the regulatory option to expand the cap and adjust reserve rules over time. The framework treats sterling stablecoins as potential competitors to commercial bank money and limits growth until the central bank is satisfied that financial stability and credit risks are managed.