The Bank of England has been gradually revealing details of its systemic stablecoin plans, ahead of an upcoming consultation. Large stablecoin issuers will be expected to hold most of their reserves at the central bank unremunerated. Deputy Governor Sarah Breeden previously revealed that a portion of reserves could be held in government bonds in order for the issuer to earn some return. Yesterday, during a DC Fintech Week talk, she disclosed that the central bank is considering providing a liquidity facility for their bond investments. This would enable solvent stablecoin issuers to quickly access funds needed for redemptions.
However, these central bank money and liquidity facilities are only being considered for systemic stablecoins. Smaller stablecoin issuers will be regulated by the Financial Conduct Authority.
Breeden also touched on a contentious topic. The Bank of England is considering imposing stablecoin holding limits of £10,000 to £20,000. These limits are temporary, aimed at preventing banking system stress and ensuring banks can continue providing credit if there’s a sudden shift to stablecoins.
The Deputy Governor highlighted that the UK is reliant on banks for 85% of retail credit, compared to the US, where the figure is closer to 30%-40%. Once banks have shifted some of their funding to wholesale sources, the limits could be relaxed. Certain companies such as supermarkets would be allowed higher limits.
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