BoE’s Breeden Sounds Alarm: Weak UK Rules Could Destabilize Stablecoins

Stablecoins face a regulatory reckoning—and the Bank of England isn't mincing words.

Deputy Governor Sarah Breeden just dropped a bombshell: watered-down UK rules could spell disaster for crypto's 'safe haven' assets. Her warning cuts through the usual fintech cheerleading like a scalpel.

Here's why it matters:

- Regulatory loopholes: Breeden sees weak oversight as an existential threat to stablecoin stability

- Market contagion risks: One collapse could trigger a domino effect across crypto markets

- The London dilemma: UK risks becoming either a innovation hub or a cautionary tale

Funny how regulators suddenly care about stability after a decade of letting banks play fast and loose with actual currencies. Maybe stablecoins need to fail spectacularly before getting the same kid-glove treatment as 'too big to fail' institutions.

One thing's clear: the era of regulatory arbitrage is ending. Whether that's good news depends on which side of the trade you're on.

• Stablecoin rules in the UK could spark risky bank outflows and threaten financial stability.
• BoE plans strict stablecoin limits to reduce banking pressure and maintain credit creation.
• The UK and US boost cooperation on crypto oversight to align global stablecoin regulations.

Stablecoin regulations in the UK may threaten financial stability if rules are loosened, according to Sarah Breeden, Deputy Governor of the Bank of England (BoE). She warned that weaker rules could lead to risky bank outflows and a credit crunch. As the BoE finalizes its crypto framework, Breeden emphasized the need for strong safeguards.

Breeden pointed to the distinctive dangers of stablecoins in the transition to a new variety of digital money in the UK. She realized that there is a necessity to strike a balance between innovation and financial stability. The BoE should strictly control the stablecoins to avoid any interference with the banking system.

The crypto industry has also reacted negatively to the recent BoE consultation paper on the regulation of stablecoins, which was released on Monday. The paper suggests creating severe limitations on token holdings, which was strongly opposed. 

Stablecoin Market Reaches $312 Billion Amid Global Regulatory Push

Based on the new regulations, each person can store up to 10,000 pounds of stablecoins, whereas businesses cannot store over 10 million pounds. According to the critics, these limits may kill growth and innovation.

🇬🇧 JUST IN: The UK’s BOE proposes a £20K cap on individual stablecoin holdings and £10M for businesses.

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Breeden argued in defense of the proposal, stating that the boundaries WOULD assist in avoiding the expropriation of a vast portion of bank deposits into tokens. This would take pressure off the banks and safeguard credit generation. Nevertheless, she did not indicate when the restrictions could be removed.

By 2025, the market of stablecoins will boom to nearly $312 billion, and nations globally will seek to control them. The UK has been striving to match the US in its regulation since the US introduced the GENIUS Act that governs stablecoins and protects consumers. Breeden supports the opinion that the UK can stay in step with the US but must step carefully.

UK and US Strengthen Partnership to Regulate Stablecoins and Crypto

Besides the holding limit, the proposal by the BoE demands the coin issuers to have 40% of their reserves at the bank of England. This action follows the depegging of the USDC of Circle in March 2023, which was in part due to the failure of Silicon Valley Bank. Breeden has pointed out that such incidences underscore the dangers of reserves.

The UK is also enhancing international collaboration in crypto regulation. In September, UK Chancellor Rachel Reeves and US Treasury Secretary Scott Bessent announced that they would collaborate in regulating coins and cryptocurrency. This partnership aims to integrate the UK into the global economy.

In another announcement, BVNK, a UK-based company, and Coinbase have canceled a deal worth $2 billion. Although this deal would have increased the adoption of coins in the UK, the current regulatory deliberations have rendered it uncertain. The BoE intends to complete its regulations in the year to come.