- The Bank of England has released a stablecoin consultation.
- There are promising aspects of the central bank’s proposals, Varun Paul writes.
- But he warns that it “falls short of its full potential.”
Varun Paul is senior director, financial markets at Fireblocks, the digital asset infrastructure firm. He leads Fireblocks’ engagement with central banks and financial market infrastructure players. Opinions are his own.
The Bank of England’s consultation on systemic stablecoins marks an important step forward for the UK.
Allowing up to 60% of backing assets to be held as short-term government debt and giving stablecoin issuers access to deposit accounts at the Bank of England could make the regime more resilient in times of stress.
At the same time, some reserve requirements remain challenging.
There is an opportunity to introduce more flexibility to support innovation and practical adoption by financial firms.
This is a clear improvement from where the UK was two years ago, and it’s encouraging to see the Bank of England emphasising financial stability while exploring tools like liquidity facilities that could be genuinely powerful.
Yet the framework falls short of its full potential — with a requirement for 40% of reserves to be held in accounts that do not earn interest, the regime remains uncompetitive globally.
Without further progress, the UK risks killing any chances of a systemically important stablecoin within its borders.
Onshoring stablecoin companies
Stablecoins are not merely a technical innovation.
They have a practical role to play in improving payment efficiency, operational resilience, and cross-border transfers. The consultation reflects a thoughtful attempt to provide clear regulatory guardrails while acknowledging that stablecoin business models rely on the interest earned on reserves.
Perhaps the most innovative proposal in this consultation is the consideration of a liquidity facility for systemic stablecoins. While details are limited, this would go further than the US or any other regulator to date.
Having a liquidity backstop provided by the central bank could encourage stablecoin companies to consider the UK. But giving up 40% of revenues may be too steep a price to pay for this privilege.
Personally, I’d like to see the Bank remunerating a portion of the reserves that issuers have to hold with them.
That is no small step for the Bank of England’s long-established monetary framework, which only pays interest to banks. But the programmability of stablecoins and wholesale CBDCs now makes this kind of innovation possible.
It would show genuine leadership on the global stage. Delivering a regime that effectively balances stability and innovation can help maintain the UK’s relevance as a financial services hub in a rapidly evolving global market.
As this consultation phase gets underway, the UK still has a chance to set a new global standard, but these proposals are not that.
Fresh proposals
Stablecoins could modernise payments, improve operational resilience, and strengthen financial infrastructure, but only if regulations can strike the right balance between risk and opportunity.
Get them right, by combining sensible oversight with flexible regulatory tools, and the Bank of England could encourage innovation in digital money while safeguarding stability.
But calibrate them wrong and the UK could miss out on the stablecoin opportunity entirely.
Thoughtful refinements, particularly around reserve remuneration and liquidity support, would make the UK regime more operationally robust and supportive of a forward-looking market.
At a time when the UK economy could do with a boost, the stakes are high.
And the world is watching.
