Quick Breakdown
- BoE’s Sarah Breeden warns that weaker stablecoin rules could cause financial instability and a credit crunch.
- The UK’s 40% stablecoin reserve rule follows lessons from Circle’s 2023 USDC depeg.
- Coinbase and BVNK end $2B deal, casting doubt on the UK’s stablecoin growth trajectory.
BoE sounds alarm over looser stablecoin regulations
The Bank of England (BoE) has cautioned that adopting weaker stablecoin regulations could expose the UK’s financial system to severe instability and even trigger a credit crunch.
Deputy Governor Sarah Breeden made the remarks in an interview with Reuters on Tuesday, emphasizing that the UK faces a “different set of risks” as it transitions to incorporating digital currencies into the broader financial system.
Breeden’s comments come just days after she expressed confidence that the UK can keep pace with the United States on stablecoin regulation, following a wave of global regulatory momentum sparked by the U.S. GENIUS Act signed earlier this year.
BoE defends cap on stablecoin holdings
The BoE’s newly released consultation paper has drawn criticism from crypto industry leaders, who say its approach remains overly restrictive compared to U.S. policy. One central point of contention is the regulator’s decision to maintain its cap on stablecoin holdings — limiting individuals to £10,000 ($26,300) and most companies to £10 million ($13.1 million).
According to Breeden, the cap aims to “halve the stress” on banks and the credit system by reducing the volume of customer deposits that could be withdrawn and converted into stablecoins. She did not specify when the measure might be relaxed.
40% backing rule rooted in circle-SVB collapse
The BoE also proposed a rule requiring stablecoin issuers to hold 40% of their reserves with the central bank — without earning interest. Breeden justified the measure by referencing the 2023 USDC depeg, which occurred when Circle had $3.3 billion of its reserves trapped in the now-defunct Silicon Valley Bank.
The UK’s central bank said it remains open to feedback and aims to finalize its regulatory framework in 2026. Under the proposed regime, the BoE would oversee stablecoins used for payments, while the Financial Conduct Authority (FCA) would supervise those used in crypto trading.
Coinbase-BVNK deal termination clouds the UK market
Adding to the uncertainty, Coinbase and BVNK, a leading UK-based stablecoin firm, terminated their planned $2 billion acquisition deal on Tuesday. The deal, which could have accelerated stablecoin adoption in the UK, was reportedly called off by mutual agreement.
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