Criticism Levied Against Bank of England's Proposed Cap on Stablecoin as Being Overly Constricting
UK Crypto Industry Urges Bank of England to Reconsider Stablecoin Caps
The UK's crypto industry is voicing concerns over the Bank of England's proposal to cap stablecoin holdings, arguing that such restrictions could undercut the country's competitiveness at a crucial time.
In a recent consultation paper, the Bank of England suggested limiting individual holdings of systemic stablecoins, those widely used for payments in the UK or likely to be. The proposal includes a cap on stablecoin holdings for individuals between £10,000 and £20,000 ($13,600-$27,200) and for businesses around £10 million ($13.6 million).
Coinbase's vice-president of international policy, Tom Duff Gordon, has expressed opposition to these caps, stating they would be detrimental to UK savers, the City, and sterling. Similarly, British crypto industry groups, including Coinbase and various UK crypto and payment sector associations, are pushing for the Bank of England to drop its proposals limiting stablecoin holdings for individuals and companies in the UK.
The Bank of England's proposal comes amidst a rapid growth of stablecoins and synthetic dollars. Behrin Naidoo, founder of Neutrl Labs, notes that what we are seeing is reflexive regulation in response to this growth. However, Naidoo cautions that historically, banks have overstated risks when new financial instruments challenged their business models.
Central bankers argue the restrictions are needed to prevent large outflows from traditional bank deposits, which could threaten credit supply and financial stability. A Treasury report from April estimated potential outflows could reach $6.6 trillion if stablecoins were allowed to offer interest.
However, the stability risks posed by stablecoins are still a topic of debate, even in jurisdictions without caps. In contrast, the US does not have limits on stablecoin holdings, as evidenced by the US Congress passing the GENIUS Act this July, creating a licensing and reserve framework for stablecoin issuers without placing limits on holdings.
U.S. banking groups have warned Congress that the GENIUS Act contains loopholes that could allow yield-bearing stablecoins to siphon trillions from deposits, threatening credit markets. Analysts project the sector could eventually scale into the trillions.
Meanwhile, institutions like BBVA have already found ways to incorporate stablecoins such as USDC into their trading services. The global market capitalization of stablecoins has reached $293 billion, according to CoinGecko.
If these limits are imposed, they would dampen stablecoin development and stall financial innovation in the UK, Naidoo added. The UK's approach contrasts with the US, and no major jurisdiction has deemed it necessary to impose caps on stablecoin holdings, according to Coinbase. Ultimately, rather than undermining banks, these instruments will be integrated into their business models, Naidoo concluded.
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