The United Kingdom is considering expanding its issuance of short-term Treasury bonds to attract stablecoin issuers, a move that highlights the country’s cautious approach to digital asset regulation while navigating global competition.
The Bank of England is evaluating an increase in these short-term government debt products, known as T-bills. The aim is to diversify the government’s investor base and strengthen its sterling-denominated debt markets.
Stablecoin firms, which require highly liquid, low-risk assets to back their digital currencies and meet regulatory demands, represent a significant and growing source of demand. However, the current T-bill market capacity may be insufficient to absorb this interest, according to a recent Bank of England report.
The Debt Management Office (DMO), responsible for managing government debt, plans to launch a public consultation in January. This consultation will explore methods to expand and deepen the ultra-short-term debt market.
🇬🇧🚨 El Banco de Inglaterra evalúa aumentar la emisión de bonos del Tesoro (T-Bills) a corto plazo.
La medida busca atraer a emisores de stablecoins y diversificar la base de inversionistas.
Actualmente, el mercado enfrenta una creciente demanda que supera su capacidad.
Se…— Diario฿itcoin (@DiarioBitcoin) November 20, 2023
As of October, the UK had approximately $143 billion in T-bills in circulation, with maturities typically ranging from one to six months.
The DMO emphasizes its commitment to maintaining a broad investor base to ensure the resilience of the government’s funding program. This involves carefully assessing costs, risks, and refinancing exposure.
This strategy comes as the UK has reduced its issuance of longer-term bonds. This reduction is primarily due to declining demand from defined benefit pension funds, traditionally key purchasers of longer-duration debt.
The UK’s approach to stablecoin regulation, proposed by the Bank of England on November 10, prioritizes financial stability and consumer protection. It includes a tiered supervision framework and strict liquidity rules for issuers.
In contrast, the United States has adopted a different stance. Its proposed GENIUS Act aims to foster innovation and establish uniform federal rules, potentially creating a more attractive environment for stablecoin firms by exempting them from certain securities regulations. This has also spurred demand for U.S. T-bills as backing assets.
UK industry feedback on the proposed regulations has been largely negative. Concerns center on strict temporary limits on stablecoin holdings—up to $26,350 for individuals and $13.175 million for companies.
Another point of contention is the requirement that up to 60% of backing assets be held in short-term government debt. Authorities defend these restrictions as essential to prevent systemic risks.
While the Bank of England has shown some flexibility by softening certain initial obligations for pound-denominated stablecoins, the sector remains skeptical. Many doubt the UK can effectively compete with the U.S. regulatory framework, which is perceived as more accessible to new market participants.
Sarah Breeden, Deputy Governor of the Bank of England, acknowledged the need for competitive regulation. However, she cautioned that the UK must act with greater prudence due to fundamental differences in its financial structure, particularly concerning the mortgage market and reliance on commercial bank credit.