Bank of England Pivots: New £40 Billion Cap to Boost Sterling Stablecoins

The Bank of England has signaled a significant shift in its approach to digital assets, moving to simplify and soften the proposed regulatory framework for sterling stablecoins. By pivoting away from restrictive individual holding limits and toward a more flexible issuer-level cap, the central bank aims to foster a more competitive environment for digital payments in the United Kingdom.

Scrapping Individual Limits for Scalability

In a notable departure from its initial proposals, the Bank of England has abandoned controversial plans to limit individual stablecoin holdings to £20,000 and business accounts to £10 million. These previous constraints were heavily criticized by industry groups, who argued they would make sterling-backed tokens nearly impossible to use at scale. Instead, the revised framework introduces a temporary £40 billion aggregate issuance cap for each systemic issuer, providing a clearer and more practical structure for banks and fintech firms to build upon.

Flexible Reserves and Economic Viability

Beyond issuance caps, the updated guidelines provide issuers with greater flexibility in managing their backing assets. Companies will now be permitted to hold up to 70% of their reserves in short-term UK government debt, while the remainder must be kept as non-interest-bearing deposits at the central bank. This revised split is a strategic attempt to balance liquidity risks with business viability, allowing issuers to earn a yield on their assets while maintaining the stability required for regulated settlement activity.

Positioning the UK in the Global Digital Race

While these rules remain part of an ongoing regulatory process rather than an immediate retail launch, the shift reflects the UK’s ambition to keep pace with digital asset regulations in the US and EU. The market is currently dominated by dollar-denominated tokens, but a more flexible sterling regime could make the UK a more attractive jurisdiction for firms building tokenized payment rails. By listening to market concerns, the Bank of England is attempting to bridge the gap between traditional financial security and the burgeoning world of digital finance.