BoE eases sterling stablecoin rules, sets £40bn cap

The Bank of England published a policy statement on June 22 that removed proposed per-wallet limits on sterling stablecoins and instead set a £40 billion cap on the total supply of any single regulated sterling stablecoin. Households and companies may hold unlimited balances of regulated pound tokens under the new framework.

The Bank cut the share of reserves required as non-remunerated deposits at the central bank from 40% to 30%. Issuers may now hold up to 70% of reserves in short-dated UK government debt. Coins designated systemic at launch may begin with as much as 95% of reserves in gilts and scale down as they expand.

Stablecoin issuers derive most revenue from the yield on assets backing each token. The earlier draft would have required a larger share of backing to be held as zero-yield deposits at the Bank. The revised reserve split increases the portion of reserves that can earn a return.

The £40 billion ceiling applies to each issuer’s sterling stablecoin rather than to individual wallets. The Bank designed the cap to limit the risk that stablecoins draw large deposits away from banks and reduce banks’ low-cost funding. The policy statement says the Bank will review the limit and may lift it when satisfied that risks to credit provision are managed.

The reversal on per-wallet caps followed pressure from industry and lawmakers. A cross-party committee in the House of Lords argued that wallet-level limits diverged from international practices and posed enforcement challenges. Issuers had said caps on individual balances are difficult to enforce across wallets and exchanges. Removing personal holding limits removes a barrier to uses such as cross-border settlement and collateral posting that the draft per-user restrictions had effectively ruled out.

Market conditions pose additional challenges for a large sterling stablecoin. Sterling tokens account for about 0.5% of a global stablecoin market valued at roughly $315 billion, while dollar-denominated tokens dominate circulation and liquidity. Many crypto markets, offshore exchanges and institutional settlement systems price and clear in dollars, giving dollar tokens deeper liquidity.

UK demand factors also matter. Faster Payments already enables near-instant, fee-free domestic transfers, so a pound stablecoin would need to offer clear advantages such as lower merchant fees or easier cross-border settlement to attract users. Global firms often prefer dollar tokens for international settlement because they offer deeper liquidity and are not capped in their home jurisdictions.

The Bank’s framework differs from approaches taken in the US and EU, where regulators have not imposed hard ceilings on the maximum size of a single domestic stablecoin. The Bank described the £40 billion figure as temporary and linked to ongoing supervisory monitoring of the tokens’ effect on the financial system.