GBP Stablecoins: Can digital cash finally go mainstream?
Stablecoins promise faster, cheaper and more transparent payments. But can new regulation help the UK — and its financial institutions — capture this opportunity?
Part 9 of
The Investment Outlook
Duration: 4 Mins
Date: 12 Feb 2026
Globally, more than US$300 billion in stablecoins circulate today, with trillions of dollars’ worth of transactions processed annually. They allow users to move value instantly, cheaply and 24/7, without relying on traditional banking infrastructure.
The UK, however, remains a tiny fraction of this market, with only one regulated GBP coin and just £5 million (US$6.8 million) in circulation. With regulation now taking shape, the question is whether the UK can accelerate adoption — or whether stringent rules will hold it back.
What are stablecoins?
Stablecoins originally served as the digital ‘cash’ traders used to move in and out of volatile crypto assets. But their potential is broader.Because stablecoins run on distributed ledger technology (DLT), they offer three major advantages:
- Instant settlement: Transactions clear in seconds rather than days.
- Low cost: Fees are minimal, even across borders.
- Transparency: Balances and transfers can be audited in near real time.
Crucially, stablecoins offer programmability. Payments can be automated via smart contracts the moment certain conditions are met — such as identity verification or fulfilment of contractual terms.
Imagine settling on a new car or home where payment and legal transfer happen automatically and instantly. Or corporate transactions where collateral moves ‘on-chain’ every time foreign exchange exposures shift. That’s the practical power of stablecoins.
As more financial assets — from gilts (UK government bonds) to money- market funds — become tokenised, stablecoins become the obvious way to settle the cash leg of these on-chain trades.
Where stablecoins can add real value
Smart-contract payments. Smart contracts can release payments automatically when predefined conditions are satisfied. This removes manual intervention, reduces settlement risk and standardises complex flows such as insurance payouts or supply-chain financing.
Retail and institutional use. Stablecoins can support both low-value, high- volume retail payments and large institutional transfers. Their scalability and speed make them suitable for everyday transactions and high-value settlements alike.
Cross-border payments. Cross-border transfers are ripe for disruption. With stablecoins, money can move globally in seconds, bypassing traditional intermediaries and cutting costs dramatically.
Tokenised markets. As DLT- based markets expand, stablecoins become the natural complement for digital assets. Tokenised securities need digital cash for instant settlement, and stablecoins fulfil that role efficiently.
UK: an emerging regulatory framework
The UK is proposing a two-tier system, with oversight split between the Financial Conduct Authority (FCA) and the Bank of England (BoE).
FCA: non-systemic stablecoins
These rules apply to small‑scale or early‑stage stablecoins. The FCA requires:
- No interest paid to coin holders
- 24-hour redemption rights
- Backing assets held entirely in the UK
- Reserves invested only in short-dated UK gilts or a GBP short-term public-debt money-market funds.
Bank of England: systemic stablecoins
For coins likely to be widely used across the economy, the BoE introduces tougher requirements:- 40% of backing assets held in a non-interest-bearing BoE account
- Remaining reserves in UK gilts
- Holding limits of £20,000 for individuals and £10 million for businesses (with some exemptions).
Where the framework may limit growth
Some restrictions risk curbing adoption just as the market is forming.- Large payments — cars, property, business purchases — could exceed retail holding limits.
- Institutional users are constrained by the £10 million cap, limiting use in high-value transactions.
- UK-regulated stablecoins cannot yet be used across borders, reducing institutional utility.
- Tax and accounting rules remain unclear.
- Systemic issuers face a major commercial hurdle — 40% of assets must sit in a zero-yield BoE account, making the economics challenging.
DLT payment alternatives are emerging
Meanwhile, stablecoins are not the only on-chain payment option.
Tokenised deposits. Banks can tokenise existing deposits, allowing them to move on-chain while still earning yield. Recent pilots — including tokenised gilts purchased using tokenised deposits — demonstrate promising integration with existing banking infrastructure.
Tokenised money market funds (MMFs). Tokenised MMFs also earn interest and are backed by liquid assets. In a pilot transaction we put up tokenised units from our MMF, while Lloyds Bank provided tokenised holdings in a gilt, as part of a foreign exchange transaction. As the value of the forex contract changed, the tokenised collateral was swapped back and forth smoothly and instantly on-chain.
Final thoughts
The UK faces a delicate balancing act: encouraging innovation while maintaining financial stability and consumer protection. Stablecoins could become a critical part of modern financial infrastructure, but only if regulation enables — rather than restricts — their practical use.
Without a widely adopted GBP stablecoin, there is a real risk that US- dollar stablecoins become the default for global on-chain payments. And the longer the UK waits to scale its own version, the harder it will be to catch up.
If regulators can find the right balance, GBP stablecoins could unlock faster, cheaper and more efficient digital transactions — and position the UK as a competitive player in the future of digital money.
