Episode #46
Response to the Bank of England’s Consultation on Stablecoins Code of Practice
The Bank of England is developing a new Code of Practice for sterling-denominated systemic stablecoins. Bitcoin Policy UK broadly welcomes changes that make the proposed regime less burdensome, including a move to a 70/30 backing model and the replacement of individual holding limits with a temporary £40 billion issuance guardrail. But it argues that significant questions remain about proportionality, competition and the Bank of England’s influence over privately issued money. In this AI-spoken episode of On the Record , we present Bitcoin Policy UK’s response to the Bank of England consultation in full. The paper examines the substantial costs that could fall on stablecoin issuers, including the requirement to keep 30% of backing assets as unremunerated deposits at the Bank of England. BPUK argues that these costs could disproportionately affect smaller and newer entrants, potentially favouring large banks and established financial institutions. It also questions whether the 30% requirement should remain fixed when it is based partly on evidence from the unusual market stress surrounding Silicon Valley Bank and USDC in 2023. The response also considers how the proposed regime compares with the rules governing commercial bank money. BPUK accepts that there are legitimate reasons for systemic stablecoins to be fully backed, but asks whether the proposed combination of central bank deposits, government securities, capital requirements and other reserves is the most proportionate way of achieving financial stability. It also notes that, as the stablecoin market grows, the rules could channel significant amounts of private capital into UK government debt. A broader question is how distinct privately issued systemic stablecoins would ultimately remain from central bank money. Under the proposals, their backing, liquidity arrangements and thresholds would increasingly depend upon rules and infrastructure set by the Bank of England. BPUK draws a parallel with some of its concerns about a potential digital pound and asks the Bank to explain where the boundary between private and central bank digital money will sit. The paper also addresses privacy and AML/KYC requirements, redemption times, custodian concentration, reliance on the gilt repo market and the transition from FCA to Bank of England regulation. Read the full written paper here: Response to the Bank of England’s Consultation on Stablecoins Code of Practice To find out more about Bitcoin Policy UK's work and how you can get involved, visit: https://bitcoinpolicy.uk/
