UK's Stablecoin Dilemma: Innovation vs. Financial Stability

The United Kingdom faces mounting pressure to develop a regulated British pound (GBP) stablecoin to maintain its global financial competitiveness, according to Mark Fairless, group CEO of ClearBank. Speaking at Web Summit 2025, Fairless argued that GBP stablecoins are essential for real-time international payments and to avoid falling behind the U.S. and EU in onchain finance. While dollar-denominated stablecoins dominate the $300 billion market, the UK's lack of a robust GBP stablecoin infrastructure risks weakening its position in digital payments.

Recent economic data exacerbates concerns. The UK's third-quarter GDP grew just 0.1% quarter-on-quarter, below forecasts and a slowdown from 0.3% in the prior period. Annualized growth stood at 1.3%, lagging expectations. Manufacturing and industrial production also contracted sharply in September, with output dropping 1.7% and 2.0% month-on-month, respectively. These figures have fueled speculation that the Bank of England (BOE) may cut interest rates further in December to stimulate growth.

Amid this backdrop, the BOE has proposed a regulatory framework for GBP stablecoins, including temporary holding limits for individuals and businesses. Under the plan, retail users would be capped at £20,000 per stablecoin, while businesses face a £10 million limit, with exemptions for firms like crypto exchanges. The BOE also requires stablecoin issuers to back at least 40% of liabilities with unremunerated central bank deposits, with up to 60% in short-term UK government debt. These measures aim to mitigate systemic risks from sudden deposit outflows but have drawn criticism for being overly restrictive compared to U.S. and EU approaches.

The BOE's cautious stance reflects structural differences in the UK's financial system. Unlike the U.S., where mortgages are largely securitized, the UK relies heavily on commercial bank lending. Deputy Governor Sarah Breeden warned that stablecoins could destabilize the banking sector by drawing deposits away from traditional institutions. The proposed rules, which build on a 2023 discussion paper, soften initial demands for 100% central bank reserves but still lag behind U.S. regulators, who have yet to impose similar limits.

Globally, stablecoin regulation is accelerating. The EU's Markets in Crypto-Assets (MiCA) framework, effective in 2024–2025, mandates 1:1 reserve backing and restricts high-risk uses. In Asia, Japan and Singapore have introduced licensing regimes to balance innovation with oversight. The UK's proposed framework, expected to finalize in late 2026, aims to position itself as a trusted hub for crypto innovation while prioritizing stability.

Industry critics, however, argue the BOE's approach could stifle growth. Varun Paul of Fireblocks noted that 40% unremunerated reserves render existing stablecoin models unviable and put UK issuers at a disadvantage. Cessiah Lopez of Solana's Superteam UK warned that missteps in implementation could undermine the UK's ambitions in digital payments.

As the consultation period opens until February 2026, the BOE faces a delicate balancing act: fostering innovation without compromising financial stability. With the U.S. and EU advancing their own frameworks, the UK's success in this space will hinge on its ability to adapt swiftly while maintaining prudence.