Bahrain Unveils First Stablecoin Rules With 1:1 Reserve Requirement

Bahrain has made a significant move in the digital asset landscape by unveiling its first set of rules for stablecoin issuance. The Central Bank of Bahrain (CBB) has introduced the Stablecoin Issuance and Offering (SIO) Module, which outlines clear guidelines and licensing requirements for companies looking to issue stablecoins in the region. This framework is designed to ensure that stablecoins are fully backed by real money, with a strict 1:1 reserve ratio requirement. This means that for every stablecoin issued, there must be an equivalent balance in cash or high-quality liquid assets.

The new regulations also mandate that companies issuing stablecoins must undergo annual audits and implement robust cybersecurity measures. Additionally, they must have strong internal controls to protect customers and demonstrate good governance and risk management systems. Companies must also have a paid-up capital of at least BHD 250,000 and provide a detailed whitepaper outlining the mechanism of the stablecoin and how the firm will manage its finances. This transparency is aimed at building trust among customers and the general public.

The SIO Module is part of the CBB Rulebook, Volume 6, and provides clear guidelines on the creation, issuance, and destruction of stablecoins. It also specifies how the reserves backing the stablecoins should be managed. Companies already licensed to operate in Bahrain will need written approval from the CBB to offer stablecoin services and must detail how they plan to operate these new services. One notable aspect of the new framework is the allowance for yield-bearing stablecoins, which can generate returns for customers through interest or other rewards on the reserve assets. However, the CBB emphasizes that these rewards must be fair and should not compromise the stability of the stablecoin or the financial health of the issuing company.

Bahrain's approach contrasts with that of the UAE, which has recently established regulations for payment tokens but does not permit algorithmic stablecoins. In Bahrain, companies will be able to issue stablecoins pegged to the Bahrain Dinar, US Dollar, and Sharia-compliant stablecoins. This flexibility is part of Bahrain's strategy to balance innovation with strong safety measures, positioning itself as a leader in digital finance. The new regulations are expected to attract more companies and investors to Bahrain's growing digital economy by providing a secure and innovative environment for stablecoin issuance.