The Bank of England has updated its systemic stablecoin regulatory framework. Compared to the earlier consultation draft, the new proposal lowers the cash reserve requirement, removes user holding limits, and introduces temporary issuance caps for individual products, aiming to strike a balance between attracting issuers and controlling financial risks.
Reduction in cash reserve ratio
Previously, the scheme required issuers to hold 40% of reserves in cash at the Bank of England, with the remaining 60% allocated to short-term UK government bonds. The new rules reduce the cash requirement to 30%, allowing up to 70% to be invested in UK Treasury bills with maturities of no more than six months.
This adjustment responds to industry concerns about operating costs and profit margins. Previously, the market believed that excessively high levels of interest-free cash reserves would compress profits from stablecoin operations and reduce the UK’s appeal to issuers. Bank of England Deputy Governor Sarah Breeden stated that this move aims to bring more choice and innovation to the UK payments market.
Cancel position limit
The Bank of England has also removed the previously controversial holding limits. The earlier version proposed individual holdings capped at £20,000 in stablecoins and corporate holdings capped at £10 million. The new framework has eliminated both restrictions.
Alternatively, regulators will impose a temporary £40 billion circulation cap on each systemic stablecoin. The Bank of England states that this arrangement is designed to slow the rapid flow of bank deposits into stablecoins, preventing the erosion of traditional banks’ funding base and safeguarding their ability to lend to households and businesses.
Redeem within 24 hours
The new framework also incorporates central bank liquidity support tools. Eligible issuers can pledge UK government bonds to the Bank of England to request emergency liquidity support during periods of market stress.
Regarding redemption requests, systemic stablecoins must redeem at par value within 24 hours, without suspending redemptions or imposing minimum redemption thresholds, even during periods of financial stress. The Bank of England also rejected proposals to invest reserves in commercial bank deposits or money market funds, citing concerns that such assets could increase risk transmission between stablecoins and the traditional banking system.
Additional information: According to the data in the article, the current total market capitalization of stablecoins is approximately $317.45 billion, below the previous high of around $322 billion.