- BoE warns rapid stablecoin growth risks destabilizing traditional bank deposits.
- Original rules required 40% reserves at the central bank earning zero interest.
- Revised plans allow 60% in UK government debt with returns on backing assets.
The Bank of England’s Deputy Governor Sarah Breeden made clear this week that rapid stablecoin growth poses a genuine risk to financial stability, even as the central bank softens some of its most restrictive proposed rules following industry pressure.
The risk Breeden identified is important. If consumers and businesses shift large amounts of money from bank accounts into stablecoins quickly, it could destabilize banks that rely on those deposits to fund lending.
“It is money and we want to make sure that this new form of money is safe,” Breeden said during a visit to Bristol.
Why the Original Rules Were So Strict
The Bank’s proposals were calibrated against real crisis data, not invented conservatism:
- A 40% mandatory deposit requirement at the central bank, earning zero interest, modeled on Silicon Valley Bank’s 2023 collapse
- Individual ownership caps of £20,000 per stablecoin and £10 million for businesses
- Near-total restriction on interest-earning reserve assets
“It was based on experience of potential liquidity stress. But we will look hard to see if we have been overly conservative in our thinking there,” Breeden said.
The Industry Pushed Back Hard
Crypto firms and payment companies warned that the proposals were unworkable and would drive serious stablecoin issuers away from the UK entirely. Breeden acknowledged the criticism directly, saying the Bank is “genuinely open to other ways” of managing the deposit flight risk.
The revised approach would allow systemic issuers to hold up to 60% of reserves in short-term UK government debt and earn returns on part of their backing assets, a significant improvement for any business trying to build a viable product in the UK.
The Reality Check
Despite the ambition, sterling stablecoins currently represent less than 0.5% of the global stablecoin market, which exceeds $320 billion. The FCA has named sterling stablecoins a major 2026 priority and launched a dedicated sandbox for firms to test products before formal rules arrive.
The balance the UK is trying to strike is genuinely difficult:
- Too strict and serious issuers go elsewhere
- Too loose, and the banking system faces structural deposit flight risk
Breeden’s message was that the Bank wants stablecoins to succeed, but it just wants to make sure the financial system remains standing when they do.
Related: Bitwise CEO Calls Old Cycle Dead as Stablecoin Supply Tops $300B
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