UK Faces Stablecoin Challenge: Balancing Innovation and Financial Security

The United Kingdom is under increasing pressure to introduce a regulated stablecoin tied to the British pound (GBP) in order to stay competitive in the global financial arena,

, the group CEO at ClearBank. During his address at Web Summit 2025, Fairless emphasized that GBP stablecoins are crucial for enabling instant cross-border transactions and for preventing the UK from lagging behind the U.S. and EU in blockchain-based finance. Although stablecoins pegged to the U.S. dollar currently dominate the $300 billion market, could erode its standing in the digital payments sector.

Recent economic indicators have heightened these worries. The UK's GDP for the third quarter increased by only 0.1% compared to the previous quarter, falling short of expectations and slowing from the 0.3% growth seen earlier.

, which also missed projections. In September, manufacturing and industrial output both saw significant declines, dropping by 1.7% and 2.0% month-over-month, respectively. that the Bank of England (BOE) might lower interest rates again in December to boost economic activity.

Against this backdrop, the BOE has outlined a regulatory plan for GBP stablecoins, which includes temporary caps on holdings for both individuals and companies. Under these guidelines, individuals would be limited to £20,000 per stablecoin, while businesses would face a £10 million threshold, with certain exceptions for entities such as crypto exchanges.

must hold at least 40% of their liabilities in non-interest-bearing deposits at the central bank, with the remaining 60% allowed in short-term UK government securities. These rules are designed to reduce systemic risks from rapid withdrawals, but critics argue they are more restrictive than those in the U.S. and EU.

The BOE's prudent approach is shaped by the unique structure of the UK's financial landscape. Unlike the U.S., where mortgages are mostly securitized, the UK depends largely on lending from commercial banks.

that stablecoins could destabilize the banking industry by pulling deposits away from traditional banks. The current proposals, which build upon a 2023 discussion paper, have eased the original requirement for 100% central bank reserves, but still remain stricter than U.S. regulations, where similar limits have yet to be imposed.

Worldwide, the pace of stablecoin regulation is picking up.

regulation, coming into effect between 2024 and 2025, requires full reserve backing and restricts riskier uses. In Asia, countries like Japan and Singapore have rolled out licensing systems to encourage innovation while maintaining oversight. , which is expected to be finalized by the end of 2026, seeks to establish the country as a reliable center for crypto innovation while keeping financial stability at the forefront.

Nevertheless, some in the industry warn that the BOE's strategy could hinder progress.

that requiring 40% of reserves to be held without earning interest could make current stablecoin business models unsustainable and put UK issuers at a competitive disadvantage. cautioned that errors in the rollout could jeopardize the UK's leadership in digital payments.

As the consultation phase

, the BOE must carefully balance encouraging innovation with safeguarding financial stability. With the U.S. and EU moving forward with their own regulatory frameworks, the UK's ability to succeed in this area will depend on how quickly and prudently it can adapt.