Central Bank of England permits stablecoins for large-scale monetary transactions
The Bank of England is exploring opportunities offered by stablecoins to optimize the British and global financial system, while maintaining a commitment to financial stability. This open yet cautious stance is particularly focused on the use of stablecoins in wholesale payments, recognizing their potential benefits such as trust, security, and lower operational costs.
Sasha Mills, the executive director of the Bank, has expressed a progressive stance towards financial innovation. He believes that stablecoins can modernize payment infrastructure without compromising financial system stability. Mills has invited the sector to work together to build a new generation of financial services that maintain London's reputation as the heart of the global financial system.
Stablecoins, unlike other cryptocurrencies, have lower volatility due to being tied to stable assets. This makes them ideal for high-value transactions within wholesale markets. In fact, they offer the ability to settle operations almost in real-time, a significant advantage over traditional methods.
However, the Bank is not blind to the potential risks. It is considering transitional holding limits on stablecoins—proposed at around £10,000 to £20,000 for individual consumers and £10 million for businesses—to mitigate risks to credit provision and deposit flight. It is also modifying reserve requirements for stablecoin issuers, allowing some reserves to be invested in high-quality liquid assets rather than requiring 100% backing solely in non-interest-bearing central bank deposits.
To enhance operational resilience and interoperability, the Bank is developing systems to synchronize DLT transactions with its main Real-Time Gross Settlement (RTGS) payment infrastructure. It advocates for a mixed financial ecosystem where traditional and new structures coexist, stressing interoperability to avoid liquidity fragmentation across "walled gardens" of old versus new financial platforms.
The Bank foresees using public blockchain networks as connectivity layers without compromising the security and regulatory standards required in private financial market infrastructures. The hybrid integration of these technologies has the potential to generate a more agile, secure, and competitive financial ecosystem.
The tokenization of assets and smart contracts can deepen existing markets, open new markets, and transform the way asset classes, capital, and balances are mobilized within the financial system. The Bank believes that stablecoins and tokenized deposits can coexist and complement each other, strengthening the financial system and enabling new functionalities.
Further detailed consultation on systemic stablecoin regulation and the stablecoin regime in wholesale and retail use is expected later in 2025. The Bank's adoption of a more flexible and open regulatory approach towards new technologies signals a promising future for the integration of blockchain technology and traditional finance.
Stablecoins, with their low volatility, could potentially bring greater safety and efficiency to high-value business transactions, as they enable almost real-time operational settlements — a significant advantage over traditional methods. At the same time, the Bank of England is establishing considerate financial regulations, such as transitional holding limits and modified reserve requirements, to safeguard the financial system and maintain stability, even as stablecoins and tokenized assets revolutionize the finance landscape and foster partnerships between technology and traditional finance, ultimately fostering a more secure, agile, and competitive financial system.
