UK Limits Stablecoin Use as BoE Eyes Systemic Risks

Under the plan, individuals will face a temporary ceiling of £20,000, while most businesses will be limited to £10 million. The rule will apply to sterling-denominated tokens backed by high-quality assets, such as those issued by payment giants or crypto-fintechs.

Key Take-away:

The cap aims to slow the migration of deposits from banks to stablecoins, protecting credit supply and monetary stability during the transition to a regulated digital-money era.

Deposit Cap Signals UK Regulatory Caution

The BoE’s move comes just three years after then-Chancellor Rishi Sunak declared the UK would become a “global crypto-asset hub.” The Treasury’s tone has since shifted. Market turbulence, including the collapse of TerraUSD in 2022 and Silvergate Bank’s failure in 2023, hardened regulators’ resolve to insulate core banking from crypto contagion.

Across the Atlantic, U.S. lawmakers have also wrestled with draft stablecoin bills, but none impose a specific cap on user holdings. In contrast, the UK’s limit makes it one of the first major economies to propose a numerical ceiling for consumers. The European Union’s MiCA regime, which took effect in 2024, focuses on issuer licensing and reserve transparency, not user-side limits.

By leaning toward caution, the Bank may be prioritising systemic resilience over the UK’s fintech competitiveness, a trade-off now central to policy debate.

Prepping the Ground for a Digital Pound

The consultation lands alongside preparations for a Digital Pound, a potential central-bank digital currency (CBDC) that the BoE and HM Treasury have been researching since 2021.

Officials say the £20,000 limit is temporary, designed to prevent digital money (private or public) from draining deposits too rapidly before a unified framework is built.

Governor Andrew Bailey has long argued that a CBDC and regulated stablecoins should “coexist safely.” Yet critics warn the BoE’s dual focus may blur lines between private innovation and state control.

Insight:

Bitedge analysts view the cap as a pre-CBDC stress test — gauging how consumers behave under digital-money limits before a state-issued version arrives.
The BoE’s proposal requires systemic stablecoins to hold 40% of reserves as deposits at the central bank and up to 60% in short-term UK gilts. Non-UK issuers of sterling-linked tokens would need to set up a UK subsidiary and custody their backing assets domestically.

These rules mirror those applied to systemically important payment systems, pulling stablecoin operators closer to the prudential perimeter of banks. The cap will be reviewed after 12 months or once regulators deem the ecosystem stable enough for broader adoption.

Industry Warns of Innovation and Liquidity Flight

Industry players, however, see friction ahead. A spokesperson for the CryptoUK trade body said the move “risks throttling adoption before innovation matures,” arguing that retail users rarely hold £20,000 in stablecoins and that institutional demand, capped at £10 million, would be the real casualty.

The Bank’s caution isn’t unfounded. The TerraUSD collapse, which wiped out $40 billion in 2022, remains a regulatory touchstone. Even asset-backed coins like Tether and USDC faced scrutiny over reserve transparency. The BoE’s new framework effectively assumes no stablecoin is immune to a confidence run.

Context Check:

In 2023, the BoE’s Financial Policy Committee modelled scenarios showing that a sudden £50 billion shift from deposits into stablecoins could amplify credit contraction by nearly 1 %. That projection underpins today’s limit.

While such macro stress tests sound abstract, they resonate after the 2024 bond-market turmoil, when sudden liquidity outflows hit UK pension funds. The BoE appears determined not to repeat that fragility in a digital context.

Global Signals and Future Stakes

The U.S. Federal Reserve has recently tightened oversight of payment stablecoins through bank-supervision channels, while Singapore’s MAS introduced new rules on custody and redemption. The BoE’s cap could therefore serve as a benchmark—especially for nations preparing to launch retail CBDCs.

Still, the optics matter. As other jurisdictions court crypto firms, London risks sending the opposite signal. Several fintech executives warn the cap might “push liquidity offshore,” weakening the city’s standing as a digital-finance hub.

For policymakers, the approach appears deliberate: stabilise now, liberalise later. As Deputy Governor Sarah Breeden noted, “We must earn trust in digital money before scale, not after.”

Final Word

The consultation runs until 10 February 2026, with final rules expected later in the year. For now, the Bank of England is balancing encouragement of private-sector innovation with its duty to safeguard bank funding and monetary stability.

If the Digital Pound advances, the proposed £20,000 stablecoin limit could become either a transitional measure or a lasting benchmark. For crypto markets seeking regulatory certainty, that distinction may determine whether the UK cements its status as a fintech hub or slips into the role of an innovation outlier.