After Blocking Stablecoins...Bank of England Makes a Strategic U-Turn

▲ Bank of England, stablecoin, pound/AI generated image

While the Bank of England (BoE), the UK's central bank, appears to have taken a step back from the cryptocurrency industry by easing key conditions in its stablecoin regulatory proposals, an analysis suggests that the essence of this adjustment is closer to a strategic reallocation aimed at maintaining the UK's leadership in digital financial infrastructure.

U.Today reported on May 14 (local time) that the Bank of England eased some parts of its proposed stablecoin regulatory framework, widening the scope for issuers to manage their reserves. In its initial 2023 proposal, the Bank of England required stablecoin reserves to be held entirely in non-interest-bearing central bank deposits, but it revised some conditions after pressure from issuers and the fintech industry.

Under the revised proposal, issuers will have access to transitional relief measures and liquidity support arrangements, and can allocate up to 60% of their reserves to short-term UK government bonds. The remaining 40% must be held in central bank funds. While ostensibly the regulator appears to have yielded to industry pressure, this change was seen as a clearer indication of the direction of UK financial strategy rather than the influence of the crypto lobby.

The initial regulatory proposal created structural problems for pound-denominated stablecoin issuers in the UK. With the US and the European Union (EU) moving towards more commercially viable regulatory frameworks, tying up 100% of reserves in non-yielding deposits effectively eliminated profitability for issuers. Industry insiders pointed out that while this approach could create the world's safest stablecoin system, it would be difficult to attract major issuers to actually operate in the UK.

Among the 46 submissions of feedback received by the Bank of England, the regulation was criticized as not being commercially viable and lacking international competitiveness. The regulator is understood to have concluded that overly rigid standards could push stablecoin activities offshore rather than reduce them. The UK is seeking a balance to maintain its influence in next-generation digital financial infrastructure without compromising its existing reputation for financial stability.

However, the Bank of England did not frame this move as deregulation. While avoiding the impression of having acceded to the demands of the cryptocurrency industry, the regulator continues to emphasize system safeguards and compliance with international standards. This is because the central bank remains cautious about the potential for privately issued digital currencies to be widely used as a means of payment. This overhaul is less of a retreat and more of a recalibration, with the UK choosing a middle ground that targets both innovation and financial stability, between aggressive crypto liberalization and outright regulatory hostility.

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