The Bank of England’s stablecoin regime: the missing liquidity lens and open questions on credit

The Bank of England’s stablecoin regime: the missing liquidity lens and open questions on creditLink opens in a new window

Bazil Sansom

November 2025

Summary:

This paper presents a commentary on the Bank of England’s evolving vision for how stablecoin will be regulated in the UK. It is based on the author’s analysis and informed by discussions within the WBS Gillmore Centre’s Future of Money, Payments and Financial Market Infrastructure working group.

Key Points:

• Liquidity, not just solvency, is the missing lens: The Bank of England’s evolving stablecoin framework focuses on credit and valuation risks of backing assets but liquidity—how those assets are turned into money at the point of payment or redemption, as well as how stablecoin draw on and reshape liquidity across the financial system—is equally fundamental.
• Backing-asset requirements are the regime’s fulcrum point: Whether stablecoins are backed solely by central bank reserves or also by short-term government securities, is a pivotal design choice shaping their liquidity model and impacts, business model, and impact on credit and financial stability.
• Stablecoins as liquidity takers, not providers: Unlike banks, which manage liquidity through interbank and repo markets, stablecoin issuers that rely on asset sales to meet redemptions depend on market liquidity and could transmit volatility both ways between markets and payments.
• Credit and monetary implications remain unclear: Despite anxiety about deposit flight, reserve-backed stablecoins could underpin monetary policy traction without necessarily constraining bank credit, meanwhile securities-backed models introduce additional market-based credit intermediation that could alter credit allocation and monetary transmission.

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