United Kingdom-based cryptocurrency industry advocacy groups have called on the Bank of England not to proceed with its plans to limit individual stablecoin holdings.
In a November 2023 discussion paper, the Bank floated setting individual caps on digital pounds between 10,000 British pounds and 20,000 pounds and asked for feedback on a possible lower limit of 5,000 pounds.
According to a Monday Financial Times report, industry groups criticized the plan, saying it would be difficult and expensive to implement and could leave the UK lagging behind other jurisdictions.
Tom Duff Gordon, vice-president of international policy at Coinbase, reportedly said that the limits would be bad for UK savers and the pound itself. “No other major jurisdiction has deemed it necessary to impose caps,” he said.
Stablecoin limits “don’t work in practice”
Simon Jennings, executive director of the UK Cryptoasset Business Council (UKCBC), told the FT that “limits simply don’t work in practice.”
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He added that “issuers don’t have sight of who holds their tokens at any given time, so enforcing caps would require a costly, complex new system.”
Last week, Jennings told Cointelegraph that UKCBC would like to “establish a transatlantic corridor for payments in stablecoins” between the UK and the United States. The Bank of England’s plan would limit the effectiveness of such a system.
UK regulators fear that stablecoins could destabilize the traditional financial ecosystem. In early April, the UK Financial Policy Committee recognized that stablecoins and crypto markets have expanded significantly in the past year, drawing heightened regulatory attention.
The committee noted at the time that “even with appropriate regulation, greater use of stablecoins denominated in foreign currencies could make some economies vulnerable to currency substitution.” Similar concerns were raised in other countries as well.
Related: Bank of England governor warns against private stablecoin issuance
Stablecoin-powered bank runs and currency substitution
Earlier this month, Christine Lagarde, president of the European Central Bank (ECB), called for policymakers to address gaps in stablecoin regulation. Among other remarks, she sounded the alarm that US stablecoin policies “could potentially result not just in further losses of fees and data, but also in euro deposits being moved to the United States and in a further strengthening of the role of the dollar in cross-border payments.”
Banks also fear that they may not be able to compete with the convenience of stablecoins if they are allowed to pay yields to their holders. Citi’s Future of Finance head Ronit Ghose warned in late August that paying interest on stablecoin deposits could spark a wave of bank outflows similar to the money market fund boom of the 1980s.
Some in the crypto industry, on the other hand, suggest that banks should step up their game to compete. “If local banks are worried about competition from stablecoins, they should pay more interest on deposits,” Bitwise’s investment chief, Matt Hougan, recently said.
George Osborne, the former UK chancellor turned crypto lobbyist, recently said that the UK is falling behind in the digital asset market, particularly in the area of stablecoins.
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