A cross-party group of UK lawmakers has raised alarms over the Bank of England’s (BOE) proposal to impose caps on stablecoin holdings, urging Chancellor Rachel Reeves to reject this controversial plan.
On Thursday, the coalition sent a letter to Reeves, expressing that the BOE’s restrictions could hinder the United Kingdom’s aspirations to become a leading player in the digital assets space. Members of both the House of Lords and the House of Commons emphasized the transformative role stablecoins play in evolving financial infrastructure, enabling lower costs and faster transactions while promoting financial inclusion.
In the letter, lawmakers noted, “Their rise is also enabling traditional institutions to connect with the digital asset ecosystem and modernize legacy infrastructure. Powerful tailwinds are rapidly driving a major shift across financial services as we know them.”
Yet, they cautioned that the BOE’s proposal to cap stablecoin ownership would ultimately inhibit the UK’s ability to fully leverage these developments, potentially pushing innovation and investment toward jurisdictions with more favorable regulations.
The letter further states, “We are deeply concerned that the UK is drifting towards a fragmented and restrictive approach that will deter innovation, limit adoption, and push activity overseas.”
The BOE’s latest move comes in the wake of a consultation paper that aims to outline regulatory frameworks for systemic stablecoins pegged to sterling. Released in November, the paper included proposals concerning backing rules and holding limits, including a temporary cap on stablecoin ownership designed to mitigate financial stability risks associated with significant withdrawals from banks.
If implemented, these restrictions would limit individual stablecoin holdings to between £10,000 and £20,000 and businesses to a maximum of £10 million, a strategy that echoes the proposed regulation for a digital pound.
In their response to the situation, a Treasury spokesperson reiterated the government’s commitment to establishing the UK as a globally leading entity in digital assets, aiming to provide clear regulations that enhance consumer confidence. The spokesperson stated, “Our approach will be fair and proportionate, and we continue to work closely with the Bank of England on the UK approach to stablecoins.”
Moreover, the Financial Conduct Authority (FCA) recently described stablecoin payments as a key priority for the coming year. In a letter to the Prime Minister, the FCA emphasized their goal to finalize regulations for digital assets and advance the initiative for UK-issued sterling stablecoins by 2026.
Nevertheless, the overall sentiment among lawmakers and industry participants suggests that the UK risks lagging behind its international counterparts. For instance, the United States has already enacted a comprehensive regulatory framework for stablecoins, which was introduced in July.
The proposals from the BOE include a requirement that systemic stablecoin issuers maintain at least 40% of the reserves backing the tokens as unremunerated deposits held at the central bank, thereby ensuring sufficient redemption capabilities. Meanwhile, issuers would be permitted to hold up to 60% in short-term UK government debt.
Critics within Parliament have dubbed the BOE’s policy suggestion as a “massive own goal,” arguing that enforcing all reserves for sterling-pegged tokens to be held domestically might reduce the pound’s global relevance. The lawmakers concluded that “to remain globally competitive, the UK must ensure its stablecoin framework is benchmarked against leading international models.”
