Bank of England's Temporary Restrictions on Stablecoins Explained
The Bank of England has announced that its proposed limitations on stablecoin holdings and transaction sizes are intended as a temporary measure to stabilize the financial system.
The Deputy Governor of the Bank of England, Sarah Breeden, has made it clear that the central bank’s initiative to impose limits on stablecoin holdings and the size of transactions is meant to be a temporary measure aimed at ensuring financial stability.
Critics from industry groups have expressed concerns that these proposed limits could hinder innovation and send a message that the UK is not welcoming to cryptocurrency.
In a speech at DC Fintech Week, Breeden clarified that the measures are short-term and intended to regulate the transition to stablecoins. She stated the necessity of allowing ’the structure of real-economy financing to adjust’ and emphasized the bank’s need to monitor stablecoin adoption.
“So let me be clear. We would expect to remove the limits once we see that the transition no longer threatens the provision of finance to the real economy.”
Breeden noted that the proposed limits would likely range between $13,429 and $26,858, which some believe would deter businesses from operating in the UK, signaling a lack of crypto-friendliness.
Ongoing Consultations
Breeden announced that a consultation would begin before the year’s end to gather opinions on the proposed limits and implementation strategies. A potential adjustment for businesses, especially large retailers, is also under consideration.
Financial System Sustainability
Breeden expressed that the bank’s major concern lies in the rapid movement of funds into stablecoins from traditional banks, which could severely limit credit availability for businesses and households.
“Our starting point is that applying limits to a user’s holdings of a given systemic stablecoin is the best way to avoid such a precipitous reduction in the availability of credit to UK borrowers.”
Breeden stated that the central bank aims to ensure that it remains the primary entity for settlements in financial markets to minimize risks in the financial ecosystem, while also acknowledging that some transactions will not involve central bank-supported money going forward.
