- The BoE proposes a limit of £20,000 for individual stablecoin holdings and £10 million for retail businesses.
- Critics see CBDC-esque elements in the proposed measure’s control mechanisms.
The United Kingdom’s central bank digital currency (CBDC) has recently hit a brick wall. It stemmed from mounting opposition to its potential use for financial control and surveillance of the populace, especially when integrated with the nation’s controversial digital ID plan. The resulting backlash led to the Bank of England (BoE) and HM Treasury (HMT) to backpedal from the initiative.
Despite that, the BoE’s proposed regulatory regime for sterling-denominated “systemic stablecoins” drew another round of criticism. Some of them mirrored the public’s concerns about CBDCs.
Establishing a New Regulatory Regime for British Pound-Pegged Stablecoins
The BoE’s new consultation paper published on Monday recognized the capabilities of stablecoins in enabling faster, cheaper, and more efficient payments. It introduced the term “systemic stablecoins” to refer to these fiat-pegged assets that can be widely used for payments. However, it also emphasized their tendency to cause financial stability risks. Hence, it pushed for their regulation by the BoE and the Financial Conduct Authority (FCA).
The BoE stated that the new regime aims to maintain financial stability while ensuring that systemic stablecoin issuers are operating within viable business models. With that, stablecoin issuers will be required to open a deposit account with the central bank and hold a portion of their backing assets in short-term UK government debt. Additionally, it will enforce liquidity arrangements to help issuers seamlessly monetize their assets if needed.
Plan for a Strict Stablecoin Cap
The provisions that generated the most flak from the crypto community were suggestions to limit individual and business stablecoin holdings. The BoE believes there should be a £20,000 cap for individual stablecoin holdings.
Meanwhile, the central bank seeks to impose a £10 million limit on retail businesses. There will be exemptions for institutions with higher stablecoin supply requirements in their normal operations.
Reserve Requirements
Moreover, the BoE proposed that issuers of systemic stablecoins should allocate 95% of their backing assets in sterling-dominated UK government debt securities. The measure aims to eliminate or at least mitigate possible financial stability risks.
The BoE plans to scale the requirement down to 60% upon exhibiting the capability to handle the risks associated with systemic stablecoins.
What Critics Say
Critics saw the strict controls as a CBDC-esque maneuver because it defeats the crypto community’s mantra of financial freedom. Others considered the caps as a deliberate attempt to curb the competitive threat stablecoins pose to the traditional banking sector.
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