UK Says Not Enough Stability in Stablecoins for Hands-Off Regulation

Any kind of debate around the crypto space’s encroachment into traditional finance has been traditionally dominated by a tug-of-war between stability and growth. 

The Bank of England (BOE) recently added to the debate with a controversial proposal to cap how many stablecoins individuals and businesses can hold, setting the limits at a proposed 10,000 pounds to 20,000 pounds (about $13,600 to $27,200) for consumers and 10 million pounds (about $13.6 million) for firms.

For the central bank, the rationale is straightforward: stablecoins, pegged to fiat currencies and often used as on-ramps to decentralized finance, could grow large enough to threaten the stability of the financial system if left unchecked. If widely used and poorly regulated, the fear is that stablecoins could act as a channel for destabilized credit flows, loss of public trust in “money,” or contagion in financial markets.

For crypto industry critics of the measure, it represents something else entirely: an innovation-stifling rule that risks hobbling the U.K.’s FinTech advantage at precisely the moment London is trying to reassert itself against rivals in the U.S., Europe and Asia.

As regulatory bodies around the world try to frame stablecoins in the context of financial stability, the BOE’s proposal offers a case study in trade-offs between control and flexibility. For the U.K., which has ambitions to remain a leader in FinTech and digital finance, the real question is whether it can design regulation that addresses risk without suffocating the use cases that are alleged to give stablecoins value.

By imposing caps, the U.K. may position itself as uniquely risk averse. For some, Britain as the safe, sober alternative is a virtue. For others, particularly crypto industry proponents, the message of “don’t build here” is self-sabotage for the U.K.’s long-term competitiveness. 

Read more: GENIUS Act Makes Stablecoins Business-Ready 

The origins of the U.K. proposal lie in a 2023 BoE discussion paper that outlined a regulatory regime for stablecoins used in payments systems that are or could become “systemic” in the U.K. economy. 

Under this framework, stablecoins aren’t merely speculative or fringe assets; they are meant to function in roles analogous to bank money in payment and store-of-value functions. If millions of Britons and a significant share of corporate treasuries migrate into sterling-pegged stablecoins, the central bank fears that large outflows from bank deposits into stablecoins could affect credit provision, possibly destabilizing banks and the wider financial system.

The $13,600 to $27,200 ceiling for individuals is designed to ensure stablecoins remain a useful payments tool without becoming a mass savings instrument. The $13.6 million limit for businesses, meanwhile, is framed as proportionate to liquidity needs without letting firms bypass banks entirely.

The objective is clear: limit exposure of households, businesses and the banking system to systemic stablecoins until confidence, supervision and reserves are in place.

See also: Stablecoins Face Liquidity Shakeout That Could Upend Payment Strategies 

The reaction from the crypto industry and payment-services groups has been swift and strongly critical. There are two primary categories of concern.

The first is enforcement and implementation. Stablecoins, especially those operating across borders or using decentralized wallets, may not have an on-chain identity that allows issuers to know who holds what at a given moment. Tracking whether an individual holds 9,999 pounds (about $13,600) or 25,000 pounds (about $34,000) in stablecoins across multiple exchanges, custodians and self-hosted wallets could quickly descend into regulatory theater.

To enforce limits, the U.K. might need pervasive digital identity controls, new wallet-tracking tools or continuous collaboration between stablecoin issuers, exchanges, wallet providers and perhaps even law enforcement, raising costs and creating privacy and technical challenges. 

The second is comparative disadvantage and regulatory arbitrage. Neither the EU’s Markets in Crypto-Assets regulation (MiCA) nor the recent U.S. GENIUS Act imposes limits on how many stablecoins one may hold. Instead, they focus on issuer licensing, reserve requirements, redemption guarantees, risk governance and more. If the U.K. imposes holding caps, it risks pushing businesses or users to more permissive jurisdictions, potentially fragmenting markets.

Another key concern is that the rules risk undermining the utility of stablecoins in commerce. For consumers, $13,600 is hardly trivial, but for high-value transactions, the cap could render stablecoins unusable. For businesses, especially those operating in eCommerce or global supply chains, a $13.6 million ceiling could force a constant juggling act between traditional accounts and tokenized money.

At the heart of the fight is a deeper philosophical divide. The BOE sees stablecoins primarily as a potential risk vector. Industry sees them as an opportunity to modernize money.

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