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Bank of England Opens Door to Stablecoin Central Bank Accounts

Bank of England Governor Andrew Bailey has outlined plans to grant widely used stablecoins access to central bank accounts, marking a potential shift in the U.K.'s approach to digital assets. Bailey described stablecoins as technology that could separate money holding from credit provision, potentially reducing the role of commercial banks in the economy.

The current financial system combines money and credit creation through fractional reserve banking, where banks hold a portion of deposits while lending out the rest. Bailey noted that stablecoins could allow a different arrangement where money and credit provision are partially separated, with banks and #stablecoins coexisting while non-banks carry out more lending activity.

The central bank plans to publish a consultation paper on the U.K.'s systemic stablecoin regime in the coming months. This new regime would apply to stablecoins intended for everyday #payments or for settling #tokenized core financial markets.

Bailey emphasized that widely used U.K. stablecoins should have access to accounts at the #BankofEngland to reinforce their status as money. He stressed that backing assets for stablecoins must be free of credit, interest, and exchange rate risk to ensure value stability.

However, the Bank of England has also proposed ownership limits of £10,000 to £20,000 for individuals and £10 million for businesses on systemic stablecoins. Sasha Mills, the Bank's executive director for financial market infrastructure, said the limits would mitigate financial stability risks from large and rapid deposit outflows.

Tom Duff Gordon, vice president of international policy at #Coinbase, criticized the proposal, stating that imposing caps on stablecoins is bad for U.K. savers and sterling. He noted that no other major jurisdiction has deemed caps necessary.