The Bank of England has softened its approach to stablecoin regulation, abandoning plans to impose strict limits on how much digital currency individuals and businesses can hold. Instead, the central bank has introduced a temporary issuance cap of £40 billion ($53 billion) for any single systemic sterling stablecoin.

The decision marks an important shift in the UK’s digital asset strategy. While regulators want to encourage innovation in payments and tokenization, they are also seeking to protect financial stability as stablecoins become more widely used.

From Wallet Limits to Issuance Caps

Under proposals introduced in late 2025, individuals would have been limited to holding £20,000 in a single stablecoin, while businesses would have faced a £10 million cap.

The proposals drew criticism from crypto companies, fintech firms, and lawmakers, who argued that the restrictions would make the UK less competitive and discourage innovation.

Following consultations and pressure from policymakers, the Bank of England abandoned the wallet limits and instead opted for a simpler approach: limiting the total amount of any systemic stablecoin that can be issued to £40 billion.

This allows consumers and businesses to use stablecoins more freely while giving regulators a mechanism to control systemic risks.

The UK Takes a Different Path

The new framework places Britain in a unique position among major economies.

In the United States, the recently enacted GENIUS Act requires stablecoin issuers to maintain high-quality reserves but does not place limits on how much can be issued.

Similarly, the European Union’s MiCA framework imposes restrictions mainly on foreign-currency stablecoins used for payments, while allowing euro-backed stablecoins to grow without comparable issuance caps.

The UK, however, has chosen to limit the supply of its own currency-backed stablecoins—a policy that currently has few international parallels.

Strict Reserve Requirements

The Bank of England is also proposing strict reserve standards for issuers.

Under the draft rules:

• 70% of reserves must be invested in short-term UK government bonds.
• The remaining 30% must be held as deposits at the Bank of England.
• Stablecoin issuers will not be allowed to pay interest to holders.
• However, payment-related rewards and incentives may still be permitted.

The goal is to ensure that stablecoins remain liquid, safe, and fully redeemable during periods of market stress.

Stablecoins Could Boost the UK Bond Market

The reserve structure may also have broader economic implications.

Because issuers will be required to hold large amounts of short-term government debt, sterling stablecoins could create new demand for UK Treasury bills and support the country’s sovereign debt market.

Government agencies have already begun exploring how tokenized money and digital payments could integrate with traditional financial infrastructure.

The Bigger Opportunity: Tokenization

Beyond payments, regulators are increasingly focused on how stablecoins could support tokenized securities, digital asset settlement, and wholesale financial markets.

A major unresolved question is whether stablecoins will eventually be used to settle transactions involving tokenized stocks, bonds, and other real-world assets.

The answer could shape the future of Britain’s tokenization strategy and determine whether London becomes a leading hub for blockchain-based finance.

Looking Ahead

The Bank of England has opened the draft rules for public consultation until September 22, with the final framework expected to be completed by the end of 2026.

If the timeline remains on track, the first regulated sterling stablecoins could enter the market in 2027.

The success of that market, however, may depend on whether the £40 billion issuance cap strikes the right balance between innovation and regulation—or whether issuers choose to build elsewhere.