The Bank of England Is Being Given a Legal Duty to Encourage Stablecoins

The UK government plans to write a new duty into the Bank of England's remit requiring it to support innovation in digital payments, including stablecoins, according to Decrypt. The change is contained in a bill scheduled to reach the House of Lords in September. The Bank's primary objective, financial stability, is unchanged and stays ahead of the new mandate.

A remit is the statutory list of things a central bank is required to have regard to when it acts. Adding innovation to that list does not authorise any particular product or issuer. It changes what the Bank has to weigh, and it gives firms a basis on which to argue that a supervisory decision failed to consider growth alongside risk.

The context this lands in

The Bank has been the more cautious of the UK's two financial regulators on stablecoins. Its consultation work has centred on backing asset quality and on limits to how much of a sterling stablecoin any one person could hold, a proposal the industry pushed back on hard. An innovation duty is the government's answer to that pushback, delivered through legislation rather than through the Bank changing its own mind.

The timing sits against a broader argument about whether stablecoins belong in payments at all. The Bank for International Settlements, the central bankers' bank, said this week that stablecoins lack credibility for payments at scale and pointed to tokenized deposits, which are claims on a commercial bank recorded on a ledger, as the better route. Cointelegraph reported the remarks from BIS chief Pablo Hernandez de Cos alongside a study noting sharp differences between jurisdictions in how issuers are regulated.

Two directions at once

So a UK statute is about to instruct the central bank to foster stablecoin innovation in the same month that the institution central banks answer to is arguing stablecoins are not fit for the job. The two positions are not formally in conflict, because the UK duty is subordinate to stability and because nothing in it obliges the Bank to approve anything. But it is a clear divergence in emphasis between a national legislature and the international standard-setting body.

What to look for

The text of the duty is what matters, and specifically whether it is drafted as a hard secondary objective the Bank must report against or as a softer requirement to have regard. The first is enforceable in practice through parliamentary scrutiny. The second is a sentence.

The other thing to watch is the holding limit. If the innovation duty is real, the most visible early test is whether the Bank's proposed caps on sterling stablecoin holdings survive the bill's passage in their current form.