Bank of England open to raising GBP stablecoin cap

Sarah Breeden, Deputy Governor at the Bank of England, signalled that UK regulators may reconsider their relatively strict limits on GBP stablecoin cap, following pushback from the digital asset industry.

Source: Bloomberg

➡️ Why this matter

A central fault line in the battle over the future of the banking system is the risk that stablecoins could pull deposit funding away from banks.

Bank deposits are not just a payment instrument. They are the primary funding source for bank lending. Large-scale migration of deposits into stablecoins could therefore have direct implications for credit creation and financial stability.

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To manage that risk, the Bank of England proposed holding caps for systemic stablecoins last year:

- £20,000 cap for individuals

- £10 million cap for businesses

The objective was to allow stablecoins to begin gaining traction in the economy without undermining bank funding stability.

However, the crypto industry has viewed the policy as overly conservative, especially when compared with the more permissive stance emerging in the United States.

But there are some key differences between the UK and US

1️⃣ The UK economy relies much more heavily on bank lending vs US

Corporate financing structures differ significantly between the two economies.

• UK: 60–70% of business funding comes from bank lending

• US: 20–30% of business funding comes from bank lending

Because U.K. businesses depend much more heavily on bank credit, any meaningful deposit outflow into stablecoins could have a larger impact on lending capacity.

2️⃣ The U.S. has a strong fiscal incentive to promote USD stablecoins

USD stablecoins typically hold their reserves in short-term U.S. Treasuries.

This creates a powerful macroeconomic dynamic:

Stablecoin growth → demand for T-bills → funding for the U.S. government

While the U.K. government may draw inspiration from this ambition, promoting GBP stablecoins as a tool to support sovereign funding is a far more difficult proposition given the dominant global role of the U.S. dollar.

➡️ Bottom line

While the narrative around stablecoin is often focused on payments, the real debate on the subject is not just about crypto or payments. It reflects deeper differences in how existing financial system and permissionless crypto world are structured and where the boundaries should be drawn for the future.

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