Stablecoins upend global banking rules; UK backs stablecoin plans

The inexorable rise of stablecoins is forcing central bankers to rethink their rules, the U.K. is defending its stablecoin approach, and Circle (NASDAQ: CRCL) is wondering how innovative it has to get before Wall Street cuts it a break.

The Basel Committee on Banking Supervision (BCBS) needs to take “a different approach” to banks’ capital requirements for digital assets, particularly in regards to stablecoins. So says Erik Thedéen, BCBS chair and the governor of Sweden’s central bank, in a November 19 interview with the Financial Times.

Under new global banking rules scheduled to take effect on January 1, 2026, digital assets are assigned a 1,250% risk weight, requiring credit institutions to hold capital equal to or greater than their respective digital asset exposure. This weight—the highest possible under the new rules—was applied to tokens transacting on permissionless blockchains, which it claimed present “a number of unique risks, some of which cannot be sufficiently mitigated at present.”

This effectively designates all tokens as extremely prone to failure/devaluation, including stablecoins—like Tether’s market-leading USDT and its closest rival USDC, issued by U.S.-based Circle—despite their purported pegs to the value of various fiat currencies.

As Thedéen noted, the rules were crafted with volatile tokens like BTC in mind (and those rules look prescient, given that BTC has shed nearly one-third of its value in just the past six weeks). But Thedéen says the ever-increasing profile of stablecoins, particularly following America’s passage of the GENIUS Act this summer, “calls for a different approach.”

Regarding the permissionless ledger issue, Thedéen said the discussion now was “are these as risky as we thought? Or is there an argument we can look at this in a different way?” The BCBS is meeting this week in Mexico, and Thedéen said the plan is to see if attendees can find “common ground” on “challenging” issues, such as digital assets.

The new rules were met with opposition from some central bankers almost immediately. The U.S. Federal Reserve’s Vice Chair of Supervision, Michelle Bowman, stated

last month that she didn’t think “anyone actually has adopted those risk weights and they’re actually not very realistic.”

In August, the European Union Banking Authority issued Regulatory Technical Standards that would allow stablecoins to be risk-weighted at the same value as their underlying fiat assets. But on October 31, Bloomberg cited unidentified ‘senior finance executives’ saying the European Central Bank (ECB) prefers to implement the BCBS rules and then conduct a review after the fact.

Bank of England defends stablecoin consultation

The Bank of England (BoE) hasn’t been as emphatic as its U.S. counterpart, saying only that it was “engaging internationally with other jurisdictions to promote regulatory consistency” regarding digital assets. The BoE recently launched its stablecoin consultation, which will close on February 10, 2026, with proposed rules expected in the second half of the year.

Critics immediately piled on to the BoE’s plans to cap stablecoin ownership at £20,000 (US$26,100) for individuals and £10 million ($13 million) for businesses, ignoring the BoE’s pledge that these caps would be “removed once the transition no longer poses risks to the provision of finance to the real economy.”

Shortly after that consultation opened, BoE Deputy Governor Sarah Breeden defended these ownership caps, telling Reuters that they would “halve the stress” on banks. Mirroring the fierce debate raging stateside, Breeden cited the potential for bank depositor flight to stablecoins offering higher interest/rewards as a risk to banks’ capacity to continue offering loans.

Breeden noted that the U.S. has more non-bank credit options, while the U.K. relies on banks for ~85% of consumer borrowing, presenting “a different set of risks to manage as we transition to bringing in this new form of money.” Breeden didn’t offer a timeline for when ownership caps might be lifted, but said the BoE expects banks to start developing plans to mitigate deposit flight via alternative funding sources.

The BoE’s critics perhaps had more valid concerns with their requirement for ‘systemic’ stablecoin issuers—aka those primarily used for retail and/or corporate payments—to hold 40% of their fiat reserves in “unremunerated BoE accounts.”

Since most stablecoin issuers’ revenue is almost solely earned on the interest from short-term Treasury bills, this inability to earn a return on 40% of their token’s market cap could blow a serious hole in their bottom line. It could be enough to deter stablecoin issuers from seeking U.K. licensing.

But Breeden said the BoE was inspired by the 2023 collapse of Silicon Valley Bank (SVB), at which Circle held $3.3 billion in cash (about 7.5% of its total reserves at the time). The result was USDC temporarily losing its 1:1 peg with the dollar, a situation that was only remedied when the Federal Deposit Insurance Corporation stepped in with a bailout of SVB customers.

Breeden said the BoE’s math was “grounded” in episodes like this, saying, “Look at what happened with SVB, with Circle—those numbers are broadly in line with that. That’s why we’re proposing 40% rather than a smaller number.”

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Future of U.K. retail payments

This month saw the release of a document detailing the U.K.’s Strategy for Future Retail Payments Infrastructure. The document is a joint effort by the BoE, HM Treasury, the Financial Conduct Authority (FCA), and Payment Systems Regulator (PSR), which began with the government release of its National Payments Vision one year earlier.

The document addresses stablecoins, tokenized deposits, and blockchain-based programmable payments, saying they “have the scope to transform the way that payments are made and received … To deliver world-leading payments and drive growth, the UK’s future retail payments infrastructure must support and enable these new technologies.”

To facilitate “interoperability across different types of digital money,” the Retail Payments Infrastructure Board is urged to “explore new ‘core interoperability’ infrastructure which would enable connection across different forms of digital money. This includes commercial bank money, e-money, tokenized deposits, and stablecoins; as well as new forms of digital money that may emerge over time, for example a potential digital pound.”

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Digital euro makes tortoises look speedy

The digital pound, like most central bank digital currencies (CBDC), hasn’t made much headway in the U.K. since the idea was proposed in 2023. In fact, the BoE signalled this summer that it’s willing to abandon these efforts and let the private sector take the lead.

On the continent, the EU’s plans for its digital euro are still alive, albeit barely. In September, the ECB stated that 2029 was a realistic timeline for the token’s launch, assuming the entire continent isn’t freely trading in dollar-denominated stablecoins by that far-off date.

Late last month, the ECB stated that a digital euro pilot program could launch by “mid-2027,” assuming EU lawmakers can herd their cats and pass the necessary legislation sometime next year.

A suggestion of how hard that will be came this month, when Italy’s bankers asked for more time in which to absorb the project’s costs. Stressing that they still support the digital euro—unlike their French and German counterparts, who fear raids on their deposits—the general manager of the Italian Banking Association helpfully suggested that the heavy capital expenditure costs required to push the project forward “could be spread over time.”

As evidence of the ‘too many cooks’ problems the digital euro faces, last month saw a Spanish member of the European Parliament present a draft report advocating for both a CBDC and private stablecoins issued by commercial banks, “which may develop faster.” This “twin approach” would both safeguard existing commercial payment platforms and ensure the EU didn’t “fall behind” the rest of the planet.

It’s safe to say that ship has sailed. You could pencil that digital euro launch in for 2039, and we’ll still take the over.

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Stablecoins aren’t waiting

While CBDCs die on the vine, commercial stablecoin issuers aren’t letting the grass grow under their feet.

This week saw Paxos announce USDG0, a LayerZero-powered omnichain version of the USDG stablecoin issued by Paxos and governed by the Global Dollar Network (GDN). GDN is a consortium of crypto bigwigs, including Anchorage Digital, Kraken, Robinhood (NASDAQ: HOOD), Bullish (NASDAQ: BLSH) and Galaxy Digital (NASDAQ: GLXY).

USDG was issued one year ago, currently boasts a market cap of nearly $1.2 billion, and is available on Ethereum, Solana, and a handful of other networks. USDG0 will dramatically expand this reach to what Paxos calls “every ecosystem,” starting with Hyperliquid (immediately), then Aptos and Plume (‘soon’).

LayerZero says USDG0’s benefits include the ability to move value “1:1 without slippage across chains,” the ability to use the token in any decentralized finance (DeFi) application, and settlement measured in seconds, “like data on the internet.”

LayerZero is also involved with the similarly named PYUSD0, the omnichain version of PYUSD, the Paxos-issued stablecoin of payment processing giant PayPal (NASDAQ: PYPL). There’s also USDT0, the omnichain version of Tether’s USDT. All utilize LayerZero’s Omnichain Fungible Token (OFT) standard.

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Circle keeps building

Circle had a rough day on Wall Street, mirroring the ongoing decline in the BTC token’s value (which briefly dipped below $89,000 on Wednesday). Circle’s shares closed Wednesday down 9% to $69.72, about $200 below its peak in June, shortly after the company’s Nasdaq debut.

The plunge spoiled a series of updates on Circle’s new Ethereum Virtual Machine-compatible Layer-1 blockchain Arc, which launched its public testnet last month. On November 13, Arc announced that StableFX, an “institutional-grade 24/7 stablecoin FX engine,” was now live on the Arc testnet.

StableFX aims to enable businesses to “access aggregated, on-demand 24/7 stablecoin FX liquidity without having to manage bilateral settlement risk with multiple counterparties, without having to deal with T+1/T+2 settlement windows [the numbers represent how many days it takes for a fiat transfer to be confirmed], and without needing to maintain large prefunded balances, relying instead on just-in-time liquidity.”

StableFX’s ultimate goal is to turn “cross‑currency stablecoin conversion into a programmable utility capable of being embedded directly in payments, treasury operations, and on/off‑ramp flows.”

Arc also announced that eight non-USD stablecoins had joined the new Circle Partner Stablecoins program, which aims to support “select regional issuers” and boost StableFX options. The tokens are AUDF (Australia), BRLA (Brazil), JPYC (Japan), KRW1 (South Korea), MXNB (Mexico), PHPC (Philippines), QCAD (Canada), and ZARU (South Africa).

On November 18, Circle announced Circle xReserve, “a new interoperability infrastructure for blockchain teams to launch USDC-backed stablecoins.” A smart contract that holds USDC to back stablecoins on participating blockchains, xReserve will allow developers and users to transfer value between USDC and USDC-backed stablecoins across supported networks.

xReserve’s first partners are BTC layer-2 Stacks and the privacy-focused Canton Network. Canton said its integration was “coming soon,” while Stacks said its deployment is “expected by year-end.”

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