BoE caves in to pressure on stablecoin backing plans

(Sharecast News) - The Bank of England has caved in to pressure from the crypto industry on what traditional assets stablecoins can be tied to. It has now proposed that issuing firms could invest up to 60% of the assets backing the digital tokens in short-term government debt, a sharp reversal from previous suggestions that they should be held entirely as central bank deposits.

Stablecoins are digital tokens designed to keep a constant value and often backed by traditional assets such as government debt, unlike other forms of crypto which are highly volatile and not supported by traditional fundamentals.

"Today's proposals mark a pivotal step towards implementing the UK's stablecoin regime next year...We've listened carefully to feedback and amended our proposals for achieving this, including on how stablecoin issuers interact with the Bank of England," said the BoE's Deputy Governor for Financial Stability Sarah Breeden.

The BoE has kept plans to introduce temporary caps on the value of stablecoins that individuals and businesses can hold, though there could be exemptions for larger businesses. It proposes £20,000 per coin for individuals and £10m for firms.

"These limits would be removed once the transition no longer poses risks to the provision of finance to the real economy," the bank said in a statement.

In a new proposal, the bank is also considering central bank liquidity arrangements to support systemic stablecoin issuers in times of stress.

"These arrangements would reinforce financial stability by providing a backstop should systemic issuers be unable to monetise their backing assets in private markets," said.

The consultation is open until February 10, 2026. Following this, the BoE will consider feedback before consulting on and then finalising codes of practice later next year.

Reporting by Frank Prenesti for Sharecast.com