The Bank of England (BoE) has issued a draft policy statement and accompanying rulebook that for the first time sets out specific regulatory requirements for systemic stablecoin issuers in the UK. The draft imposes a firm issuance cap of £40 billion (roughly $50 billion), designed to limit the scale of any single stablecoin and prevent potential systemic risks to the financial system. The BoE intends this cap to ensure that stablecoin issuance remains manageable and does not expose the economy to undue risk from a concentrated issuer failure.
The draft also includes a strict ban on the payment of interest to stablecoin holders. This measure is intended to clearly distinguish stablecoins from yield-generating financial products and reinforce their role as a digital alternative to cash for everyday transactions. On the reserve asset front, the rules are equally prescriptive: issuers must hold at least 70% of their reserves in short-term UK government gilts, with the remaining 30% held as deposits at the Bank of England. This reserve composition is chosen to provide a high degree of liquidity and safety, ensuring that stablecoins can be readily redeemed.
Additionally, the draft mandates that stablecoin issuers must be able to process full redemptions within 24 hours. This requirement is intended to protect holders from liquidity freezes and give them confidence that their stablecoin holdings can be converted back to fiat currency quickly. The BoE's approach reflects a careful balance between fostering innovation and imposing necessary safeguards.
The Bank of England stated that the draft rules are aimed at supporting safe innovation and enabling stablecoins issued in the UK to become trusted digital currencies. By providing a clear regulatory framework, the central bank hopes to create an environment where stablecoins can thrive while maintaining financial stability. This initiative marks a significant advancement in the UK's regulation of digital currencies and offers a model for other countries considering similar rules.