The Bank of England wants to limit the holdings of stablecoins to £5,000, igniting anger in the fintech industry.

The Bank of England (BoE) proposed a plan to set a cap of £5,000-£20,000 on individual holdings of stablecoins, which has been strongly criticized by the Crypto Assets industry. Experts warn that this "unrealistic" restriction will cause the UK to fall behind in the global digital finance race and could undermine the pound's position in international payments. As major countries around the world actively embrace stablecoin innovation, this counterproductive regulatory measure in the UK has been criticized as technically unfeasible and costly.

Controversial Stablecoin Restrictions Proposal by the Bank of England

According to a report by the Financial Times in the UK, the Bank of England proposed a cap on individual holdings of digital pounds (in the form of stablecoins) in a discussion paper released in November 2023. The initial plan sets the limit between £10,000 and £20,000. More shockingly, the central bank is also considering further reducing this limit to £5,000 and has begun publicly soliciting opinions from various sectors.

The Bank of England stated that setting a personal holding limit is aimed at reducing financial risks that stablecoins may trigger, such as bank runs. Citibank's future finance chief Ronit Ghose also warned at the end of August that if stablecoins start paying interest on deposits, it could repeat the history of the 1980s when U.S. money market funds siphoned off bank deposits.

( Industry Expert: Restrictive Measures "Practically Unfeasible"

The British Crypto Assets industry groups have expressed strong opposition to this proposal, believing it to be unrealistic and more harmful than beneficial.

Simon Jennings, the Executive Director of the UKCBC (United Kingdom Crypto Assets Business Committee), clearly stated that the restrictions on stablecoin holdings are "practically unworkable." He pointed out two key issues:

Technical feasibility issue: The stablecoin issuer is unable to track the identity of token holders in real-time.

Implementation costs are too high: Executing personal holding limits requires the establishment of a costly and complex new system.

Jennings also emphasized that the UKCBC is promoting the establishment of a "stablecoin payment transatlantic corridor" between the UK and the US, and the restrictive measures from the Bank of England will severely impact the effectiveness of this plan, undermining the UK's competitiveness in the international fintech arena.

) Global competitiveness damaged: The UK may fall behind in the digital finance race

Market experts criticize that the restrictions on stablecoins are detrimental to UK savers and the pound itself. He specifically pointed out that major jurisdictions around the world have not implemented similar restrictions, and if the UK insists on enforcing them, it may result in:

· Damage the attractiveness of its digital currency market

· Weaken the position of the pound in international payments.

· Hinder financial innovation and improve cross-border payment efficiency

Former UK Chancellor of the Exchequer and now cryptocurrency lobbyist George Osborne has also warned that the UK has fallen behind other countries in the digital asset market, particularly in the stablecoin sector, and overly strict regulations could further widen the gap.

Experts suggest: regulation should promote innovation rather than restrict development

Matt Hougan, the Chief Investment Officer of Bitwise, proposed a more constructive solution: banks should respond to the competition of stablecoins by raising deposit rates rather than relying on restrictive measures. This suggestion reflects the fundamental principle of market competition – addressing challenges by improving one's own service quality rather than restricting competitors through regulatory means.

In the global regulatory landscape of Crypto Assets, countries are seeking a balance between protecting financial stability and promoting innovative development. This proposal from the Bank of England clearly leans towards excessive conservatism, which may result in the UK falling behind other more forward-looking countries in the digital financial revolution.

As stablecoins demonstrate great potential in global payments, cross-border remittances, and financial inclusion, UK regulators may need to reconsider their stance and adopt a more balanced and forward-looking regulatory approach to ensure that the UK remains competitive in the global digital finance race.