Sarah Breeden, Deputy Governor of the Bank of England, clarified that the central bank's plans to limit the holdings and trading volumes of stablecoins are merely temporary measures to ensure the stability of the financial system.
The proposed restrictions on stablecoins were initially introduced in a discussion paper in November 2023 as a means to ensure financial stability. As the plans progressed, industry organizations launched a fierce critique in September, arguing that these restrictions would stifle innovation and limit growth.
However, in a speech on Wednesday at the DC Fintech Week, Breeden stated that these restrictions are only temporary stopgap measures that will be lifted, as the bank ultimately hopes to "support the role of stablecoins as part of a multi-currency system."
Breeden indicated that these measures would allow the "financing structure of the real economy to adapt" to stablecoins and ensure that banks can "monitor the adoption of stablecoins and assess the potential for rapid changes in the structure of the financial system."
Industry organizations widely criticized the proposed restrictions, which had previously suggested limits between $13,429 and $26,858 (£10,000 to £20,000), arguing that these limits would signal to the broader industry that the UK is not a cryptocurrency-friendly jurisdiction and would drive businesses away.
Breeden stated that the Bank of England will launch a consultation before the end of the year to seek feedback on the levels of restrictions and implementation pathways.
"We will consult in the coming weeks on the proposed regime details for the use of pound stablecoins in systemic payment systems, and we will remain open to feedback as we finalize the rules," she said.
One proposal under discussion is to set higher limits for businesses and grant exemptions for supermarkets and other large companies.
Exemptions for companies operating in the country's digital sandbox, which will launch in October 2024 as a testing ground for distributed ledger technology, are also under discussion.
According to Breeden, the Bank of England's primary concern is that if the system cannot keep up and experiences rapid growth on a large scale, the swift outflow of funds from banks to stablecoins could lead to a "sharp decline in credit availability for businesses and households."
She emphasized the importance of ensuring that the financial system has time to adjust gradually, stating that this is "an extremely important issue for the UK, as credit here is more severely reliant on banks than in places like the US."
"Our starting point is that limiting users' holdings of specific systemic stablecoins is the best way to avoid a sharp reduction in credit availability for UK borrowers."
Meanwhile, Breeden expressed her belief that wholesale payments and settlements in asset markets should remain the domain of central banks to avoid "unnecessary interconnections in the financial system" and potential stability risks.
Related: The UK advances plans to allow asset management companies to use blockchain for fund tokenization.
However, she also noted that central bank-backed currencies are not currently used for all settlements and are not expected to be in the future, as tokenized deposits and regulated stablecoins may play a role in the tokenized market.
"However, we cannot do this alone. We need the industry—including existing firms and new entrants—to work with us, engage, experiment, develop use cases, and deploy this technology," Breeden added.
Related: CME's futures open interest surpasses Binance: Has Wall Street fully taken control of the crypto market?
Original article: “Bank of England Deputy Governor Says Stablecoin Limit Plans Are Temporary”
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