Innovate Finance, the industry body for UK FinTech, through its Digital Pound Foundation programme, has today published a blueprint to make the UK the leading international market for stablecoin – a key pillar of the future digital economy.
Its new report, ‘Stablecoin: The UK Opportunity’, outlines how the UK can become the most attractive jurisdiction in the world for issuing and using stablecoins, while maintaining high standards of financial stability, transparency and consumer protection.
Stablecoins - digital tokens backed by traditional currencies - are already a $200bn global market, and are expected to underpin major future innovations in payments, artificial intelligence, and financial infrastructure. Due to their efficiency and cost saving, programmability and transparency benefits, they are primed to revolutionise areas such as international payments and supply chain management all the way to consumer applications such as shopping and buying a house.
With its global financial footprint, deep FinTech ecosystem, and regulatory credibility, the UK is well positioned to lead - but must act quickly. Key competitors have already pulled ahead, with both the US and EU having developed stablecoin regimes that are either live or on the cusp of being legislated.
Despite its slow progress, the UK has a unique opportunity to capitalise on the flexibility that Brexit offers and move ahead with a stablecoin regime that is more friendly towards innovation.
Janine Hirt, CEO of Innovate Finance, said: “Without decisive and urgent action, the UK risks missing a significant window of opportunity. As the fourth most traded currency globally and home to nearly 40% of FX turnover, GBP is a natural anchor for global stablecoins. It’s not unrealistic to suggest the UK could capture 10-20% of this market.
“Despite other jurisdictions moving earlier, the UK has the advantage of learning from their gaps. This plan sets out a clear, comprehensive regime to ensure stablecoins support economic growth, unlock innovation in payments and AI, and cement the UK’s role as the global centre of digital finance.
“By acting now, the UK can position itself as the global centre for digital assets, and not only benefit from stablecoin as a drive of growth itself, but also as a key enabler of other digital markets.”
A framework for global leadership in financial innovation
The report proposes four key building blocks for a world-leading UK stablecoin regime.
GBP-backed stablecoins: The UK must support the development of GBP-backed stablecoins with robust but flexible requirements. Stablecoins should be backed 1:1 by high-quality liquid assets such as short-term gilts, money market funds, bank deposits, and Bank of England reserves. At the same time, issuers should have discretion to hold equivalent tokenised assets or overcollateralised reserves, where appropriate, to allow for innovation and manage FX risks.
Building international channels: The UK’s Stablecoin regime needs to be both compatible with and accessible to an international market. The framework calls for stablecoins denominated in other currencies to be issued and used freely in the UK, and for UK-regulated firms to be able to issue multi-currency stablecoins. This would enable seamless cross-border payments, strengthen trade and financial ties with the US and Asia-Pacific, and pave the way for London to become the centre of a digital Eurodollar market.
Enabling commercial incentives: The UK’s stablecoin regime should allow issuers to offer yield or interest to customers with whom they have a direct commercial relationship. This creates incentives to hold and use stablecoins, supporting liquidity and secondary market stability. Crucially, this can be done without compromising the role of stablecoins as a payment instrument or exposing users to unnecessary risk, so long as appropriate disclosures are in place.
A bespoke regulatory regime: The UK must establish a bespoke regulatory regime for stablecoins. Rather than force them into frameworks designed for e-money or broader crypto assets, stablecoins should have a distinct category - recognising their unique function as digital cash equivalents. This regime must be proportionate, competitive and designed to evolve with the market.
Growth potential
The report also outlines how a clear stablecoin regime will deliver a consistent environment for business growth, encouraging innovation in UK financial services. The growth and competitiveness potential includes:
Boost to payments - Stablecoins can reduce transaction costs, improve access to financial services, and support greater financial inclusion.
Artificial intelligence - Stablecoins are a critical part of the infrastructure required to deliver on the UK’s AI action plan.
Tokenised securities and funds - A digital settlement asset is critical for a functioning digital securities and tokenisation market, and a UK-compliant stablecoin will keep value and flow in the UK.
Priority sectors for UK growth strategy - Stablecoins offer all key UK strategic financial services sectors a competitive edge.
Gilts - HM Treasury’s Digital Gilt Instrument (DIGIT) project will only take off if stablecoins can be used for settlement.
Eurodollar 2.0 - The UK could become the ‘Eurodollar market’ for stablecoins - and benefit from a significant share of the rapidly growing market which is already valued at $200bn.