Members of the House of Commons and the House of Lords from all parties have asked UK Chancellor Rachel Reeves to stop the Bank of England from implementing its proposed system for systemic stablecoins.
A group of members from both the House of Commons and the House of Lords in the UK, including former Defence Secretary Sir Gavin Williamson, shadow Science and Tech (AI) Minister Viscount Camrose, and Lord Hart, the former Prime Minister Rishi Sunak’s Chief Whip, have asked Chancellor Rachel Reeves to step in over the Bank of England’s plan for systemic stablecoins.
Regulatory restrictions could shift activity offshore
In a joint open letter to the Chancellor on December 11, they said that the Bank of England’s plans to regulate stablecoins could push innovation and money to other countries.
The parliamentarians say the plans could make the UK a “global outlier” by making it illegal to use stablecoins outside of the Digital Securities Sandbox, banning interest on reserves, and putting in place what they call “impractical and anti-innovation” holding caps that could drive activity into dollar stablecoins like USDC USDC$1 and USDt USDT$1.
Industry leaders highlight practical concerns
The people who signed the letter say that stablecoins are already becoming a “pillar of the digital economy.” They also warn that the UK is “drifting towards a fragmented and restrictive approach” that will make it harder for people to use them and damage London’s influence in the world.
They say that British pound-pegged stablecoins make up less than 0.1% of all stablecoins in the world and that the existing system overstates the risk of depositor flight, which goes against the government’s goal of making the UK a “world-leading destination for digital assets.
Asher Tan, co-founder and CEO of CoinJar, one of the longest-running cryptocurrency exchanges in the world and registered with the UK Financial Conduct Association, told Cointelegraph that the letter showed “growing frustration across the digital asset industry” that the UK might “regulate tomorrow’s financial infrastructure with yesterday’s assumptions.
Bank of England’s proposed measures
The Bank wants to set interim holding restrictions for sterling-denominated systemic stablecoins at £20,000 ($26,500) per coin for individuals and about $13.3 million for enterprises, but the biggest companies will be permitted to retain more.
Issuers would have to hold at least 40% of their reserves as deposits at the Bank that don’t earn interest and up to 60% in short-term UK government debt.
Tan remarked that ideas like hard limitations or limits on reserve economics make things too hard to work. “They won’t get rid of all the risk,” he said. “They’ll just move activity to places with more flexible rules.”
How the UK compares to other places
The Markets in Crypto-Assets Regulation, or MiCA, is already in place in the European Union. It defines rules for euro and other asset-backed tokens across the EU limits the number of stablecoins from outside the EU to defend monetary sovereignty, focusing on origin rather than total market growth.
The Bank of England’s per-user caps and wholesale limits, on the other hand, go farther in limiting scale. This means that the UK could have stricter usage limits than MiCA.
The GENIUS Act, which just passed in the US, is meant to encourage large-scale payment and settlement use without blanket per-wallet caps or a restrictive sandbox model. The authors of the UK letter say that this puts London at danger of missing out on the “next wave of capital markets innovation” that the EU and US are likely to seize. Kronbichler said, “If pound-denominated stablecoins are structurally less efficient than offshore alternatives, activity won’t go away; it will move overseas.”