News that the Bank of England could allow certain exemptions for its planned stablecoin holding cap has been greeted with muted enthusiasm from within the UK crypto industry, with stakeholders calling for the proposed limits to be "recalibrated."
The potential waiver would enable crypto-exchanges and other large entities to exceed the mooted £10 million ($13.3 million) limit for businesses.
This holding limit drew criticism from the UK crypto industry in September, when it emerged that the central bank intended to go ahead with a previously discussed cap, which would also prohibit individuals from holding more £10,000 or £20,000 ($13,300 or $26,600) in stablecoins.
According to one source cited by Bloomberg, the Bank of England has now modified its approach, which it originally justified in terms of protecting financial stability.
People familiar with the matter have also said that the Bank of England will include stablecoins in the UK’s Digital Securities Sandbox, which was launched by the UK Treasury in late 2023 as a means of testing new payment technologies.
"Cumbersome" retail cap
While this could be taken as a sign that the central bank’s approach to stablecoins and crypto is liberalising, for some industry commentators the potential exemption doesn’t go far enough.
“While there are indications in the press that this policy may be under review, we believe it remains critically important that these limits are recalibrated,” said Simon Jennings, the Executive Director of the UK Cryptoasset Business Council, speaking to Decrypt.
Jennings explained that the cap on retail users, which is not in line for an exemption, runs the risk of being “cumbersome, costly and potentially unworkable” in practice.
The impracticality of a cap is something also highlighted by Fireblocks' senior director for financial markets Varun Paul, who previously served as the Bank of England’s head of fintech.
“Because people can have many different wallets, it becomes very difficult to monitor their total holdings,” he told Decrypt. “Putting that responsibility onto stablecoin issuers is implausible, because stablecoins are bearer assets and the issuer does not (and should not) know the identities of all holders at any given time.”
Similarly, Paul noted that putting the burden of enforcement on individual wallet providers is also impractical, because it would require sharing data with other providers, something which may violate privacy rights.
Jennings argued that, “More sophisticated macroprudential tools, grounded in transparency and supervisory reporting, would be far more effective in enabling scale while maintaining financial stability.”
Paul suggested that there are natural limits to holding stablecoins, since such cryptocurrencies pay no interest, unlike traditional savings accounts.
And while he acknowledged that stablecoin issuers may be able to “attract a share of idle balances” away from UK banks, the proposed cap for individuals may end up being largely irrelevant.
“Since the large majority of the UK population has less than £5,000 in their current account, you could argue that the holding limits will do nothing to stop those idle current account balances from migrating away from UK banks,” he explained.
While the proposed cap has attracted a significant amount of ire from the British crypto industry, the Bank of England’s discussion paper makes it clear that the incoming limit “would be raised, or removed completely, if the Bank believes the risks to financial stability have been mitigated.”
For some figures, such removal cannot come quickly enough, given how it may send the wrong message to the industry.
Noting that the U.S. crypto industry has enjoyed accelerated growth in recent months, CoinJar CEO Asher Tan told Decrypt that the UK may struggle to nurture its own crypto sector if it introduces stringent caps.
He argued that the UK "has lacked similar traction in stablecoin innovation," adding that a stablecoin cap "would increase hostility to what should be a competitive play for the UK which sees itself as a global centre for finance."
