Introducing the 60% Government Debt Limit for Stablecoins

Cryptocurrency

Imagine this scenario: You’re sipping your morning coffee in London, scrolling through your favourite finance-and-tech feed, when you come across a headline:

“Bank of England (BoE) proposes stablecoin regulation with 60% government debt limit.”
You pause. Stablecoins … elusive digital tokens? Government debt … serious financial weight? What on earth is going on?

For many crypto enthusiasts, entrepreneurs exploring digital assets, and even seasoned professionals who’ve dipped a toe in token-economies, this development marks a pivotal moment. The BoE is signalling: stablecoins aren’t just fringe side-bets anymore. They are coming into the regulatory spotlight—and the rules are changing.

In this long-form article, we’ll unpack:

What exactly the BoE is proposing, and why the government debt limit matters.
Why this matters to beginners in crypto, to entrepreneurs launching token platforms, and to professionals shaping strategy.
How this regulation might play out in practice—and what it means for the UK and global stablecoin ecosystem.
Real-life examples, data, and trends as of 2025 to ground the discussion.
Takeaways and a clear call-to-action: what you should do next, whether you’re buying stablecoins, building them, or simply watching the space.

So grab a comfortable spot. We’re diving deep into this intersection of crypto, regulation, and traditional finance—with the “government debt limit” as our guiding thread.

Contents

Background: How We Got Here

What is a stablecoin and why regulators care

Let’s begin with the basics. A “stablecoin” is a type of digital token whose value is intended to remain stable—most often pegged to a fiat currency like the British pound or the US dollar. For example, you might have a GBP-pegged stablecoin meant to always equal £1, or a USD-pegged one at $1.

Why do people use them?

They provide a bridge between crypto assets and traditional money: you can move funds in and out of volatile coins without fully leaving the digital ecosystem.
They’re increasingly being considered for real-world payments, remittances, business treasury services, or fast settlement.
They promise (in theory) stability, convenience, and novel infrastructure.

But regulators have concerns: a stablecoin, if widely used, can start acting like money (or a deposit). That means risks: if the backing assets fail, if redemption fails, if deposits flee into stablecoins and undermine banks. The BoE has stated clearly that widely-used stablecoins should be regulated similarly to banks—because when you cross the threshold of “money-like,” everything changes. Reuters+2Bank of England+2

Why the BoE is stepping in now government debt limit

In November 2025, the Bank of England released a consultation paper on regulating sterling-denominated “systemic stablecoins.” Bank of England+1

Key reasons:

The UK payments landscape is changing – new infrastructure, digital innovation. The BoE describes it as a future “multi-money” world, where stablecoins sit alongside bank deposits, tokenised deposits, central bank money. Bank of England
They want to maintain trust in money: the BoE emphasises the public’s trust in money and payments is at stake. Bank of England
The risk of deposit flight: When depositors move funds out of banks into stablecoins, banks may lose funding, affecting credit to households and businesses. The BoE’s recent papers quantify this. Finextra Research+1
They’ve heard from industry: The previous BoE proposal (2023) had required issuers to hold 100% of backing assets as unremunerated deposits at the BoE—industry pushback forced a rethink. The Cryptonomist+1

So: the BoE wants to set a rulebook before things scale too fast. They launched a consultation (open until February 10 2026). Bank of England+1

The Core Proposal: 60% Government Debt Limit

What does “60% government debt limit” mean?

At its heart, the proposal states: for sterling-denominated systemic stablecoins (those widely used for payments in the UK and deemed systemic by HM Treasury), issuers must back liabilities (i.e., redeemable tokens) with safe, liquid assets. Specifically:

At least 40% of backing assets must be held as unremunerated deposit accounts at the Bank of England. PaymentExpert.com+2Investing.com+2
Up to 60% may be invested in short-term UK government debt securities (gilts) when the stablecoin is at scale. Investing.com+2The Cryptonomist+2
For issuers recognised as systemic at launch, or transitioning from the Financial Conduct Authority regime, they may initially hold up to 95% in short-term government debt, before stepping down to 60%. Bank of England

Why “government debt” (gilts)? Because they are high quality, liquid, low-counterparty-risk assets—much better than corporate debt or opaque private assets.

Why this mix matters: balancing safety and viability

The BoE’s previous idea of 100% central bank deposits (with no interest) was resisted because it made business models unattractive: issuers would earn nothing and have high costs. The new mix aims to strike a balance:

The 40% deposit at BoE anchors redemption at par, gives confidence under stress.
The up to 60% government debt gives issuers some return, while keeping quality high.

This means the “government debt limit” (i.e., the 60% max in government debt) is central: it allows issuers to build a viable business while maintaining strong backing assets.

Related rules: Holding limits and transition path government debt limit

The backing asset rule doesn’t stand alone. The BoE also proposes:

Holding limits: Individuals would be capped at £20,000 worth of each systemic stablecoin; businesses at £10 million. Exemptions may apply for certain large retail businesses or crypto firms. Investing.com+2The Cryptonomist+2
Joint regulation: Systemic stablecoins would be jointly regulated by the BoE (prudential/financial stability) and the FCA (conduct/consumer protection). Non-systemic ones remain under FCA only. Bank of England+1
Location policy: Non-UK based issuers of sterling stablecoins must set up a UK subsidiary holding backing assets and capital in the UK. Bank of England+1
Transition path: The regime is still a consultation; Codes of Practice will follow later in 2026. Bank of England+1

Implications for Different Audiences government debt limit

For crypto buyers (beginners)

If you’re someone who buys stablecoins (perhaps to trade, hold, or use for payments), here’s why this matters:

The proposed regulation is a signal that stablecoins are becoming more credible in the UK. That could increase institutional interest, leading to higher liquidity, better infrastructure, and more adoption.
The “government debt limit” means backing assets will be stronger for systemic UK stablecoins. That reduces the risk of backing-asset failure and supports redemption at par.
However, the holding limits (£20,000 per person) mean retail users may face caps, or have to use non-systemic stablecoins (with weaker backing). That could fragment the stablecoin landscape.
For UK users, stablecoins that meet this regime might become “safer bets”; but they may also cost more or be less flexible (for issuers to comply). Choose with awareness: check issuer backing, transparency, redemption mechanisms.

For professionals and entrepreneurs

For those building or advising in the crypto / fintech space, this is a strategic moment:

If you plan to issue a stablecoin in the UK, you’ll need to design the backing-asset strategy around these proposed rules – i.e., optimise for 40% deposit + up to 60% gilts. Failure to comply could mean being non-systemic and losing the ability to scale or being limited to FCA only.
If you operate a platform that uses stablecoins (payments, wallets, exchanges, treasury), you’ll need to evaluate: Will your stablecoin be designated “systemic”? If so, the BoE regime applies. If not, FCA only – which means different rules, perhaps less rigorous backing, less regulatory burden—but also less market credibility.
For business models: The backing asset mix gives some ability to generate yield (via gilts) but still heavy regulation. Cost structures, liquidity management, collateral-haircuts, redemption flows—all become central.
For strategy: The UK clearly wants to be a hub for tokenised finance (payments, wholesale, settlement). If your business has cross-border ambitions, UK compliance might give competitive advantage. But you’ll also need to track global regimes (US, EU) and how they compare.

For the wider ecosystem & financial stability

From a macro-perspective, the “government debt limit” reflects broader themes:

Traditional regulators are no longer ignoring crypto; they’re bringing stablecoins into the “money” system.
The asset-backing requirements link digital tokens to the real economy (government debt). That creates new intersections between fiscal policy, debt markets, digital assets.
The holding limits and backing rules reflect concerns about deposit flight, bank funding, and systemic risk in a new “multi-money” world.
Globally, this puts the UK slightly ahead of the curve in clarity. But it also raises questions: will the UK regime be too strict relative to others, giving offshore jurisdictions advantage?

Real-Life Trend Spotlight (as of 2025)

Stablecoin market size and growth

The global stablecoin market by late 2025 is estimated at ~$300 billion (some sources) for assets outstanding. Financial Times+1
Many stablecoins are still used mainly as crypto-asset trading on-ramps/off-ramps, not payments per se. The BoE emphasises that only systemic ones (used widely for payments) will fall under its regime. Bank of England+1
Governments and central banks are increasingly discussing digital money: Central bank digital currencies (CBDCs), tokenisation of assets, and so-called “digital pounds”. The BoE’s consultation links to its National Payments Vision. Bank of England+1

Debts, interest rates and government bond market backdrop

A key detail: the backing assets include short-term UK government debt. Why is that relevant today? Because:

After years of elevated interest rates and large sovereign debt issuance (UK included), government debt yields, liquidity and markets are in flux. That means stablecoin issuers holding UK government debt face real-world risks (e.g., interest rate sensitivity, liquidity under stress).
The BoE’s backing rule suggests confidence in short-term gilts—but also a recognition of risks: hence the 60% cap and emphasis on high-quality and short-dated instruments.
For example, if stablecoin issuers swapped huge volumes into long-dated bonds, then under redemption stress the liquidity risk increases. The cap helps mitigate that.

UK fintech and digital payments push

The UK has been positioning itself as a digital finance hub:

The BoE mentions working with the Payments Vision Delivery Committee to modernise UK retail payments. Bank of England
The stablecoin consultation expects a “multi-money” future: tokenised bank deposits, stablecoins, central bank money. This is not just a crypto play—it’s payments infrastructure.
For entrepreneurs, this means opportunity: stablecoins that comply may be embedded into new retail, payments, remittance, treasury solutions. But regulatory clarity (and cost) matters.

Potential Challenges and Criticisms

Is the 60% limit too restrictive or too lenient?

Some critics say even 60% in government debt still leaves 40% in deposit at the BoE with zero interest—could disincentivise issuers.
Others say the regime is lenient compared to older proposals of 100% central bank deposit so it’s a positive compromise.
But even so, the step-down from 95% → 60% backed by government debt assumes issuers will scale; interim financial models may struggle.

Holding limits and market fragmentation

The retail holding cap (£20,000) has prompted backlash: some argue it stifles adoption and gives offshore stablecoins a competitive edge. Financial Times+1
Enforcement is tricky: how do you monitor wallet-based holdings across smart contracts? The BoE acknowledges operational challenges. The Cryptonomist
There’s a risk of fragmentation: stablecoins compliant with the UK regime vs. non-systemic coins outside it—users might choose less regulated but riskier options.

Global competitiveness and regulatory arbitrage

If the UK regime is significantly stricter than the US or EU, issuers might locate elsewhere. Some industry voices warn the UK could lose fintech advantage. Financial Times
Stablecoins are global by nature; cross-border regulation, equivalence regimes, and coordination matter. The BoE’s location policy may raise barriers for non-UK issuers.
Risk of “shadow” stablecoins: digital tokens not classified as “systemic” could attract users escaping caps/backing rules, but also carry higher risks.

Operational, technical and liquidity risks

Even with high-quality backing, redemption risk under stress remains: if many users redeem at once, the issuer must monetise backing assets quickly. The BoE is proposing liquidity back-stop arrangements (“central bank lending facility” style) for systemic issuers. PaymentExpert.com
Use of government debt helps but doesn’t remove risk: short-dated gilts are liquid—but in a crisis, liquidity can dry up or price may move.
Issuers must manage collateral, haircuts, custody, settlement latency—these are technical but critical. The BoE paper stresses multi-vendor custody, reconciliation. The Cryptonomist

What This Means Going Forward

Timeline and next steps

The consultation closes on 10 February 2026. Bank of England+1
After feedback, the BoE intends to publish Codes of Practice later in 2026. Bank of England
Issuers should start planning now: review backing asset strategies, governance, redemption mechanisms, liquidity plans, jurisdiction structure.
For users, keep an eye on which stablecoins register as “systemic”, how issuers publish backing and redemption data, and how rules evolve globally.

Strategy for stakeholders

For investors/buyers:

Prioritise stablecoins that clearly disclose backing asset composition, redemption terms, audit/attestation—especially if you’re in the UK.
Recognise that compliance costs may drive issuer concentration: fewer but stronger players.
Monitor how the “government debt limit” affects yield and cost: backing assets in gilts may offer modest yield but high quality.

For issuers/builders:

Model your business around that 60% cap in government debt: how much return can you generate, what is your cost of issuance?
Structurally design: central bank deposit account relationships, custody of backing assets, operational resilience, clear redemption path.
Prepare for classification: Will you aim to be “systemic” (higher regulation, maybe higher cost) or remain non-systemic (lighter rules, but less scale)?
Consider jurisdiction and location: UK subsidiary requirement, holding assets domestically, compliance costs—all matter.

For policy watchers/analysts:

The BoE’s move is a benchmark: regulators elsewhere will watch how well it works.
The interaction between tokenised finance, stablecoins, and government debt markets is a new frontier.
The broader “multi-money” vision means stablecoins are not just for crypto trading—they could be part of mainstream payments.

Storytelling Snapshot: Two Real-World Scenarios

Scenario A: A UK startup launching a payments stablecoin

Let’s imagine BrightPayCo, a UK fintech startup. They plan to launch a sterling-pegged stablecoin to enable rapid merchant payments and loyalty schemes. They aim for widespread retail adoption, so they expect to be designated “systemic”.

Given the BoE’s proposal: they need to back each token with assets such that at scale: 40% deposit at BoE + up to 60% short-term UK government debt. They choose short-dated gilts (1-3 years) for the debt portion.

They build these features:

Redemption portal: users can redeem tokens for pounds at any time.
Transparent disclosure: backing asset portfolio published monthly.
Liquidity reserve: standby line from commercial bank in case of redemption surge.
Governance: independent trustee holds title to backing assets, custodied in UK.

They calculate yields on short-term gilts, plus costs of BoE deposit (zero yield) plus operational costs. Their business model shows a modest margin—but they believe the regulatory credibility will win merchant adoption.

They also model the transition path: initial phase might allow up to 95% in gilts (per BoE proposal) then step down to 60% as they scale. That allows flexibility to launch with fewer deposits at BoE. Bank of England

Scenario B: A crypto investor deciding between two stablecoins

You’re “CryptoAlex,” a retail investor in the UK, holding stablecoins to park value between trades. You see two options:

CoinX £1-stablecoin, UK-based, props to comply with BoE proposals, publishes monthly backing assets, states that 60% of backing is gilts, 40% BoE deposits.
CoinY £1-stablecoin, offshore issuer, not registered as systemic in UK, backing assets include a mix of corporate bonds, commercial paper, some government debt—but no UK deposit at BoE.

Which do you pick? You weigh: coinX looks more stable, likely redeemable, subject to robust regulation—so fewer risks. CoinY might offer higher yield (issuer invests backing in higher-risk assets) but higher counter-party risk, less regulatory oversight.

You choose coinX for safety, especially given the UK regime’s direction. Later you monitor if coinX actually follows backing rules, publishes disclosures, and meets redemption in stress.

Frequently Asked Questions (FAQs)

FAQ 1: What exactly is the “government debt limit” in the BoE’s proposal?

The term refers to the limit on how much of a systemic stablecoin issuer’s backing assets can be invested in UK short-term government debt securities (gilts). Under the proposal, issuers may hold up to 60% of backing in such debt once the stablecoin is at scale. The remaining (~40%) must be in unremunerated deposits at the BoE. In a “systemic at launch” scenario, the issuer may initially hold up to 95% in government debt before scaling down to 60%. The Cryptonomist+2Bank of England+2

FAQ 2: Why does the BoE require 40% of backing assets to be BoE deposits?

The 40% deposit requirement gives issuers a “safe anchor”: deposits at the central bank are among the safest, most liquid assets, supporting redemption at par even under stress. This reduces the risk that users cannot redeem stablecoins for fiat currency. The BoE wants to combine safety (central bank deposit) with viability (some yield via government debt). PaymentExpert.com+1

FAQ 3: Are these rules already in force?

No. This is currently a consultation paper published by the Bank of England on 10 November 2025. The consultation closes on 10 February 2026. After feedback, detailed Codes of Practice are expected later in 2026. Until then, the rules are proposals, not yet binding. Bank of England+1

FAQ 4: What are the holding limits for stablecoins under the proposal?

For systemic sterling-denominated stablecoins, the BoE proposes:

An individual holding limit of £20,000 worth of each coin.
A business holding limit of £10 million.
Exemptions may apply for large firms, retailers, or crypto platforms. These limits are temporary, until the transition risk is judged to have passed. Finextra Research+2Investing.com+2

FAQ 5: How will these rules affect stablecoins issued outside the UK?

If a non-UK issuer issues a sterling-denominated stablecoin and intends to serve UK users broadly, the BoE proposes they should set up a UK subsidiary, hold backing assets and capital in the UK, and comply with the regime if designated systemic. The location policy is meant to ensure that UK oversight can apply effectively. Bank of England+1

FAQ 6: What happens if an issuer fails to comply or faces liquidity stress?

The consultation paper proposes that systemic stablecoin issuers may have access to a central bank liquidity facility (or back-stop) from the BoE in stress situations—if they meet criteria. This is still under consideration. PaymentExpert.com+1 If an issuer fails materially or redemption cannot be met, consumer protections, insolvency rules and resolution frameworks will apply; the BoE emphasises trust and orderly failure arrangements. Bank of England

FAQ 7: How does this relate to US or EU stablecoin regulation?

While the UK has proposed unique features (e.g., the holding limits, the composite backing asset formula), many themes overlap globally: asset-backing quality, redemption at par, regulatory classification of stablecoins as “money-like”, oversight of issuers. The difference: UK’s proposed 60% cap on government debt backing and the strong “BoE deposit requirement” may set it apart. Competitiveness and regulatory arbitrage are active debates. Financial Times+1

Conclusion & Call-to-Action

To wrap up: the BoE’s proposal for a stablecoin regulatory regime—with the government debt limit of up to 60% backing in short-term UK government securities—is a major shift. It signals that stablecoins are moving from the fringes of crypto into mainstream payments and financial infrastructure, and that regulators expect them to behave more like money or deposits when widely used.

For beginners, professionals, and entrepreneurs alike, this means:

Beginners: Be more discerning about stablecoin issuers, favour those with transparent backing, and understand that regulatory compliance matters.
Entrepreneurs: Build your product strategy around viability and regulatory safety—backing asset strategy, liquidity planning, redemption design matter.
Professionals/analysts: Pay attention to how this regime is implemented, how issuers adapt, how global coordination evolves—this could reshape finance.

What you should do right now:

Audit your stablecoin holdings (if you hold any). Check issuer disclosures: backing assets, redemption terms, regulatory status.
If you’re building a stablecoin or payments business: start modelling for the proposed regime. Include the 40% BoE deposit + up to 60% gilts backing mix, plan for redemption liquidity, capture location/subsidiary requirements.
Stay updated: follow the BoE consultation developments between Nov 2025 and Feb 2026, and be ready for the Codes of Practice in 2026.
Consider jurisdiction: UK may become a credible regulatory base, but global comparison matters. What about EU, US, Asia?
Educate your stakeholders, users or clients: regulation is coming, and market credibility will favour those who comply early.

In the evolving world of digital money, today’s proposals may very well determine which stablecoins win trust—and which fade. If you’re in this space, now is the time to act.

Cryptocurrency