The Bank of England (BOE) is reportedly softening its stance toward digital assets with a potential exemption to a controversial policy that would establish stricter stablecoin rules for the UK market.
The central bank aims to grant waivers to certain digital asset firms that need to hold large amounts of stablecoins, like crypto exchanges. Additionally, the BOE intends to allow firms to use stablecoins as a settlement asset in its experimental Digital Securities Sandbox.
The changes to the sandbox will initially permit firms to adopt regulated stablecoins tied to non-sterling currencies for settlement purposes. This would allow the BOE to observe use cases for these digital assets while it evaluates its approach in more detail, said Bloomberg sources.
Notably, the BOE’s plan would reassemble its proposed approach to the digital pound, which aimed to address financial stability risks that deposits could flow out of the banking system.
BOE executive director for financial market infrastructure, Sasha Mills, previously stated that the limits would “mitigate financial stability risks stemming from large and rapid outflows of deposits from the banking sector (…) and risks posed by newly recognised systemic payment systems as they are scaling up.”
Simon Jennings, executive director of the UK Cryptoasset Business Council trade body, considers that “limits simply don’t work in practice.” He explained that “stablecoin issuers don’t have sight of who holds their tokens at any given time, so enforcing caps would require a costly, complex new system, such as digital IDs or constant co-ordination between wallets.”
According to Bloomberg’s sources, the restrictions are expected to be included in a consultation paper that will be published by the end of the year. The BoE previously said its proposed cap could be “transitional” while the financial system adjusts to the growth of digital money.
The report also noted that the potential exemptions could be seen as a shift from Governor Andrew Bailey’s skeptical perspective. Bailey has previously warned that stablecoins threaten to destabilize the public’s trust in money.
Osborne stated that authorities cannot continue to wait and evaluate the development of a digital revolution “reminiscent of Nigel Lawson’s Big Bang in the 1980s” while other financial capitals adopt comprehensive legislative frameworks for crypto asset platforms.
