Stablecoin Straitjacket: Critics Slam BoE Cap

Organizations within the cryptocurrency industry are actively appealing to the Bank of England (BoE), urging them to reconsider their strategies regarding limitations on stablecoin holdings for both individual consumers and corporate entities within the United Kingdom.

Tom Duff Gordon, Vice-President for International Policy at Coinbase, stated in an interview with the Financial Times that “Implementing caps on stablecoins would be detrimental to UK savers, the City of London, and the strength of sterling. No other significant global economy has seen the need to impose such limits.”

This opposition follows a report from the FT indicating the BoE intends to move forward with a consultation paper published in 2023, regarding the regulation of stablecoins.

The document put forward suggestions for capping individual holdings of systemic stablecoins – those widely used within the UK’s payment systems, or likely to be – to an amount between £10,000 and £20,000 (approximately $13,600 to $27,200 USD). For businesses, the proposed upper limit would be in the region of £10 million (around $13.6 million USD). Central banking officials have defended these suggested limits, claiming they are required to prevent substantial withdrawals from conventional bank deposits, which could jeopardize the supply of credit and destabilize the financial system.

This discussion arises as interest in stablecoins experiences rapid global expansion. According to CoinGecko, the overall market capitalization has reached $293 billion. Industry experts anticipate that this sector could eventually grow into the trillions. It’s worth remembering that similarly optimistic forecasts were made for other crypto ventures such as NFTs and the metaverse.

The UK’s approach contrasts significantly with actions taken in other countries. In the United States, Congress recently approved the GENIUS Act, which establishes a framework for licensing and reserve management for stablecoin issuers, without setting limits on the amounts individuals or businesses can hold.

Will Beeson, Founder and CEO of Uniform Labs, shared with Decrypt, “This development underscores the UK’s relatively conservative stance compared to the US and other nations. However, stablecoins are already widely used globally by millions, with hundreds of billions in circulation.”

He further added that stablecoins offer improved payment functionalities and, in some regions, superior savings solutions. “The demand is present, and trying to limit usage could push users towards alternative options. A more effective strategy would be to foster innovation within the UK’s financial system and create a competitive edge for sterling in a digitally-native financial landscape, rather than imposing strict limits.”

Stablecoins and stability

The debate around the potential instability risks associated with stablecoins remains prominent, even in regions without holding limitations. In August, groups from the U.S. banking sector cautioned Congress that the GENIUS Act had gaps that might allow yield-bearing stablecoins to divert trillions from traditional bank deposits, which could disrupt credit markets. A Treasury report from April forecasted possible outflows reaching $6.6 trillion if stablecoins could offer interest-bearing accounts.

Crypto industry advocates warn that these caps would impede the UK’s competitive standing. Behrin Naidoo, founder of Neutrl Labs, told Decrypt, “These actions appear to be knee-jerk regulatory responses to the rapid growth of stablecoins. These types of limits would hinder stablecoin development and stifle financial innovation in the UK. Rather than addressing systemic risk, these restrictive measures could push capital to other financial centers.”

Naidoo suggested that traditional banking institutions have overstated risks associated with financial instruments that challenge their established business models. “Organizations such as BBVA have started finding methods to integrate stablecoins such as USDC into their trading services. Ultimately, these technologies will be integrated into bank’s business plans, rather than undermining them.”