The UK softened stablecoin rules, but may still be capping its own market

The Bank of England has dropped the piece of its stablecoin plan that the industry hated most, the proposed £20,000 limit on how much sterling stablecoin any one person could hold, along with the £10 million ceiling for businesses. In their place, the central bank's June 22 policy statement set a single £40 billion cap on how much of each systemic sterling stablecoin can exist in the UK, and loosened the reserve rules so issuers can finally earn a decent yield on the money backing their coins.

Households and companies can now hold as much of a regulated pound stablecoin as they like, and any one of those coins can grow to £40 billion before it has to stop.

This puts the UK in a rather unusual spot among large economies. The US and the EU both regulate stablecoins heavily, yet neither puts a hard ceiling on how large a token denominated in its own currency may become. The UK was the first to do that, while calling the limit “temporary” and promising to review it.

Sterling tokens account for roughly 0.5% of a global stablecoin market worth around $315 billion, which puts the real test of the new regime well past legality and onto whether a pound coin can ever grow large enough to rival the dollar tokens that already run global crypto liquidity.

A friendlier framework with the growth ceiling left in place

The reversal on holding caps came after months of pressure. A cross-party House of Lords committee told the Bank in early June that wallet-level limits diverged from global norms and had alarmed founders, and that issuers had spent the consultation period arguing that caps on individual balances are nearly impossible to enforce across wallets and exchanges.

Dropping them clears one of the biggest sources of friction for anyone who wants to use a sterling stablecoin for something bigger than pocket-money payments, since cross-border settlement and collateral posting were effectively off the table under per-user limits.

The change that does the most for issuer economics comes from the reserve rules, which are easy to miss. Stablecoin issuers make most of their money from reserve income, the yield they earn on the assets backing each coin, so the split between interest-bearing government debt and non-yielding central bank deposits decides whether the business works at all.

The Bank's November 2025 draft would have required systemic issuers to park 40% of their backing as unremunerated deposits at the Bank of England, with the remaining 60% in short-term gilts. The new framework cuts the deposit requirement to 30% and allows issuers to hold up to 70% in short-dated UK government debt, with a step-up that allows coins deemed systemic at launch to start at 95% in gilts and scale down as they grow.

More of the float now earns a return, which is the difference between a viable sterling stablecoin and one that loses money against dollar rivals holding Treasury bills.

The £40 billion ceiling sounds generous, and for a purely domestic payment instrument, it is. But stablecoin networks live on scale: more users pull in more merchants, deeper liquidity, more market makers, and more integrations, and each of those makes the coin more useful for the next user who shows up. A cap that bites before those network effects mature can leave a coin safe and supervised, yet too thin to settle cross-border or wholesale flows that justify building it in the first place.

Coinbase's European policy lead and ClearBank's chief executive both made similar points this week, warning that a capped, reserve-constrained sterling coin could be less commercially attractive than its dollar and euro cousins.

The Bank's real worry is deposit flight, the prospect that households and firms would shift large balances out of bank accounts and into stablecoins, leaving banks with less cheap funding and a tighter capacity to lend, with that pressure building fastest during stress.

So the UK is supervising sterling stablecoins as potential competitors to commercial bank money, and the £40 billion cap is there to contain that competition before it turns systemic. The Bank has been explicit that it'll lift the limit once it's satisfied that the risks to credit provision are handled, which means the ceiling is a temporary brake the Bank fully intends to release.

Will anyone build a sterling stablecoin at scale in the UK?

The biggest problem facing the regime is demand. UK consumers already move money domestically in seconds through Faster Payments, so a pound stablecoin has to beat an option that's already instant and free before anyone bothers switching. Merchants won't touch it without a real cut in fees.

Global companies keep wiring dollar tokens into their settlement stacks because USD liquidity stays deeper and scales without a ceiling, and a sterling coin offers them a shallower pool with a hard cap bolted on top. Issuers, for their part, are being asked to accept thinner margins and a smaller addressable market for the privilege of operating inside one of the most conservative regimes going.

Every one of those has to break the right way before £40 billion of sterling stablecoin starts behaving like anything resembling a real market.

The dominance they're up against is severe and self-feeding. Around 98% of stablecoins in circulation are denominated in dollars, since most crypto markets, offshore exchanges, DeFi liquidity pools, and institutional settlement flows already price and clear in dollars.

The US wrote that advantage into law with the GENIUS Act, which embedded dollar stablecoins directly into the dollar system, and Europe is scrambling to build a euro answer because it watched the same gap open up, with Europeans running 38% of global stablecoin transactions while euro tokens make up about 0.3% of supply. A sterling coin enters that contest from an even smaller base, and it does so carrying a ceiling that its dollar competitors get to skip.

There's a non-zero chance that the BoE has this right. A conservative, fully supervised framework is arguably how stablecoins earn the trust of banks, fintech companies, and payment firms that would steer clear of an offshore-style token, and it has signaled that the £40 billion figure could increase as it grows more comfortable. The UK would then be trading early speed for durable legitimacy, a defensible bet if regulated demand actually shows up.

However, the dominating sentiment seems to be that Britain softened the optics while leaving the competitiveness problem unsolved. Scrapping the user cap removed the most visible irritant, but a per-issuer ceiling and a 30% non-yielding reserve drag still leave sterling stablecoins harder to scale than the dollar alternatives that already own the liquidity, an outcome the GENIUS Act's implementation is busy entrenching in the US.The

BoE has lifted the limit on how much money a person can hold while keeping a limit on how large the market can grow, and those are two different problems. The UK has stopped debating whether sterling stablecoins should exist, and what it's testing now is how large one can get before it starts looking enough like money to make the central bank nervous all over again.

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