A cross-party group of UK lawmakers is urging the government to rethink the Bank of England’s proposed stablecoin framework, warning that the current approach could undermine innovation and push capital toward dollar-backed digital assets.
In a letter addressed to Chancellor Rachel Reeves, the group argues that the draft rules are overly restrictive and risk making pound-backed stablecoins uncompetitive from the outset.
Why Lawmakers Are Pushing Back
The lawmakers’ core concern is that the Bank of England’s framework, as currently designed, would discourage both users and investors from adopting sterling-backed stablecoins. Rather than strengthening financial stability, they argue the rules could have the opposite effect by diverting activity toward more flexible, non-UK alternatives.
A central issue is the proposed £20,000 holding cap on stablecoins for individuals. According to the lawmakers, such a limit would make pound-backed stablecoins impractical for many use cases and incentivize users to shift to widely available dollar-pegged assets like USDC and USDT, which face no comparable restrictions.
Interest Ban And Market Access Concerns
The proposed ban on earning interest on stablecoin reserves is another point of contention. Lawmakers warn that removing yield entirely would further reduce the appeal of sterling-based digital assets, especially when compared with U.S.-backed stablecoins that are often linked to interest-bearing reserve structures.
In addition, the BoE’s limitations on wholesale market usage are viewed as a significant barrier to innovation. The group argues that restricting stablecoins in institutional and wholesale contexts would slow the development of advanced fintech applications and limit the UK’s ability to compete in emerging digital financial infrastructure.
Risk To The UK’s Fintech Position
The letter warns that the current regulatory direction could leave the UK “on the sidelines” as digital asset innovation accelerates globally. Lawmakers caution that an overly cautious framework may trigger a flight from pound-backed stablecoins to dollar-based ones, resulting in most on-chain activity being denominated in U.S. dollars rather than sterling.
Such an outcome, they argue, would weaken the UK’s influence in digital finance and reduce its ability to shape standards in an increasingly tokenized global economy.
Call For A More Progressive Framework
Rather than rejecting regulation outright, the lawmakers are calling for a more balanced and forward-looking approach. They advocate for a framework that encourages adoption, attracts international investment, and supports the growth of high-value fintech businesses within the UK.
The appeal comes at a time when the United States is actively moving toward clearer digital asset regulation, heightening concerns that uncertainty in the UK could erode its long-standing leadership in financial innovation.
As the government reviews feedback on the Bank of England’s proposal, lawmakers are pressing for changes they believe are necessary to ensure sterling-backed stablecoins can compete on a global stage rather than being sidelined by design.
