While the Bank of England has historically concerned itself with sterling’s stability against traditional currencies, it now finds itself grappling with an entirely different breed of monetary contender: stablecoins that promise the impossible dream of cryptocurrency without the volatility.
The Bank’s approach reveals a peculiar regulatory ballet, where measured cooperation with the Financial Conduct Authority masks deeper anxieties about monetary sovereignty. Through consultation papers CP25/14 and CP25/15, released in May 2025, the FCA has outlined a framework that treats stablecoins with the reverence typically reserved for actual currency—which, depending on one’s perspective, either validates or undermines the entire premise of digital assets.
The regulatory distinction between “systemic” and “non-systemic” stablecoins betrays the central bank’s recognition that these instruments could genuinely threaten traditional payment systems. Proposed holding limits of £10,000-£20,000 for individuals and £10 million for businesses suggest authorities acknowledge stablecoins’ potential scale while simultaneously attempting to constrain it through administrative fiat.
Perhaps most tellingly, the Bank of England plans its own consultation on systemic stablecoins for late 2025, complementing the FCA’s work. This coordinated response indicates that what began as regulatory curiosity has evolved into something approaching existential concern.
The proposed requirement that stablecoin custody become a regulated financial activity fundamentally forces digital assets into traditional banking’s regulatory envelope—a move that either legitimizes cryptocurrencies or domesticates them beyond recognition.
The framework’s focus on “qualifying” stablecoins—those pegged 1:1 to fiat currencies like GBP—reveals the authorities’ preference for digital versions of existing monetary arrangements rather than genuinely novel financial instruments. The prudential standards outlined in CP25/15 mirror traditional banking requirements, suggesting regulators view stablecoins less as revolutionary technology and more as banks wearing digital clothing. The proposed full reserve backing requirement ensures that stablecoin issuers must hold high-quality, liquid assets equal to outstanding stablecoins, fundamentally altering the operational model of digital currency providers. Under the new rules, issuers must complete redemption requests by the end of the next business day, creating operational complexities that further challenge traditional cryptocurrency practices.
The UK’s cautious approach, with final rules expected in 2026 after consultation feedback by July 31, 2025, reflects a government torn between aspirations to become a global cryptoasset hub and deep-seated concerns about monetary stability. The growth of stablecoins facilitates efficient cross-border transactions, positioning these digital assets as increasingly attractive alternatives to traditional payment systems that central banks are struggling to regulate.
Whether this regulatory choreography represents thoughtful prudence or institutional fear remains the subject of considerable global financial debate.
