Bank of England Proposes £20,000 Cap on Retail Stablecoin Holdings

Core Viewpoint - The Bank of England has proposed temporary limits on stablecoin holdings for retail and business users, aiming to manage financial stability during the initial adoption phase of systemic stablecoins [1][2][3]. Group 1: Proposed Limits - Individuals would be allowed to hold up to £20,000 (US$26,000) in a single systemic stablecoin, while businesses would face a £10 million (US$13.1 million) cap [1]. - The proposal does not cover stablecoins used for non-systemic purposes, which remain the predominant use case today [2]. Group 2: Future Adjustments - The limits are transitional and will be loosened or removed once financial stability risks subside [3]. - Non-systemic tokens will be regulated separately by the Financial Conduct Authority [3]. Group 3: Reserve Management - Up to 60% of reserves could be held in short-term UK government debt, with the remainder as unremunerated deposits at the central bank [4]. - The proposal allows for a greater share in interest-bearing instruments, which could impact trust and liquidity during stress periods [4]. Group 4: Liquidity and Market Considerations - The Bank is considering providing recognized issuers access to its liquidity facilities to meet redemption requests [5]. - The current size and structure of the UK's short-term debt market may not support large-scale stablecoin demand [5]. Group 5: Regulatory Approach - The proposal represents a softening from the Bank's earlier stance, which recommended that all reserves be held as central bank deposits only [6]. - Requiring systemic issuers to hold some reserves in central bank deposits could enhance confidence and systemic resilience [7].