TLDR
- The Bank of England proposed limits on individual stablecoin holdings between £5,000 and £20,000.
- UK crypto advocacy groups strongly opposed the proposal due to its potential impact on innovation and competitiveness.
- Tom Duff Gordon from Coinbase said such caps could harm UK savers and weaken the British pound.
- Simon Jennings of the UK Cryptoasset Business Council stated that enforcing these limits would be expensive and complex.
- The Bank of England argued that the limits are necessary to protect the financial system and banking stability.
The Bank of England has received sharp criticism from UK-based cryptocurrency groups for proposing caps on individual stablecoin holdings. In a 2023 paper, the Bank suggested limits between £5,000 and £20,000 per person. However, the crypto sector argues these restrictions could damage innovation and harm the UK’s global competitiveness.
Crypto Leaders Reject Stablecoin Limits
The Bank of England’s discussion paper outlined potential caps on holdings of its proposed digital pound. While aiming to prevent financial instability, the limits drew immediate pushback from key crypto stakeholders. These groups argue that the approach is both impractical and harmful to users and businesses.
Tom Duff Gordon from Coinbase stated,
“No other major jurisdiction has deemed it necessary to impose caps.”
He believes such restrictions would damage trust in the pound and hurt savers. Moreover, he warned the Bank of England that the plan risks pushing innovation out of the country.
Simon Jennings, who leads the UK Cryptoasset Business Council, echoed the concerns about enforcement. He said, “Limits simply don’t work in practice,” and highlighted the technical challenges issuers face. He also warned that creating enforcement systems would be complex and expensive.
UKCBC also advocates for cross-border stablecoin systems, especially with the US. According to Jennings, the Bank of England’s plan would weaken such developments. Industry leaders argue the proposed caps send a negative message about the UK’s role in digital finance.
Bank of England Stresses Financial System Protection
The Bank of England maintains that stablecoins could threaten the broader financial system if not regulated. Its Financial Policy Committee has flagged risks from rapid growth in digital assets. The committee expressed concern about the potential for currency substitution if foreign-denominated stablecoins dominate.
The Bank of England argues that a digital pound must be introduced with limits to protect deposits in traditional banks. It sees this as essential in avoiding disruption to the lending sector and monetary policy. UK officials remain cautious even as other regions push forward with broader adoption.
Other global regulators also share concerns about stablecoin dominance. The European Central Bank’s Christine Lagarde recently raised similar alarms. She emphasized the risks of euro deposits shifting to US-regulated digital currencies.
Traditional banks have raised concerns that stablecoins paying yields may outcompete them. Citi’s Ronit Ghose warned such yields could cause major outflows from banks. He compared the potential impact to the money market fund boom decades ago.
Bitwise’s Matt Hougan responded by urging banks to adjust their offerings. He said,
“If local banks are worried… they should pay more interest on deposits.”
Some crypto advocates believe competition would drive financial improvement.
