London is the undisputed capital of global currency markets, with around 38% of global foreign-exchange trading taking place in the UK.
But the infrastructure of money is evolving. Stablecoins, digital forms of traditional currencies, are rapidly becoming an important part of global finance. One of the largest issuers, Circle’s USDC, processed $8.4 trillion in transactions in January 2026 alone, nearly half of Visa’s annual payments volume. Yet around 99% of stablecoins are denominated in US dollars, raising an increasingly urgent question: where does Britain fit in the future of digital money?
Stablecoins are, at their core, remarkably simple. The most widely used versions are fiat-backed stablecoins, which are digital tokens representing existing currencies and backed one-for-one by safe reserve assets such as cash or short-term government bonds. If a user holds a dollar or sterling stablecoin, they are effectively holding a digital claim on reserves held by the issuer. Stability comes from the promise that the token can be redeemed for the underlying currency at par.
Despite that simplicity, the economic implications are significant. Utilising distributed ledger technology, payments can be settled almost instantly, 24 hours a day, seven days a week, internationally, without the delays and costs associated with traditional correspondent banking systems.
They also enable programmable finance, allowing payments to be embedded directly into software, automated contracts and digital platforms. For businesses operating globally, the ability to move money quickly and cheaply is transformative.
There are broader societal benefits too. Stablecoins can enhance financial inclusion by lowering barriers to participation in financial networks and providing people in hyperinflationary or politically unstable economies with access to US dollars where traditional banking services are limited. For governments, there is an additional advantage: fiat-backed stablecoins are typically collateralised with sovereign debt. As the supply of stablecoins grows, so does demand for government bonds held in reserve.
That dynamic has important geopolitical consequences. Dollar-denominated stablecoins reinforce global demand for US Treasuries and strengthen the international role of the dollar. The same principle could apply to sterling. A thriving ecosystem of sterling-backed stablecoins could increase demand for UK government debt while reinforcing London’s position as a global financial centre.
Adoption is already accelerating across mainstream finance. Payment networks such as Visa and Mastercard have begun integrating stablecoin settlement into their systems. Asset managers including Fidelity are exploring institutional stablecoin products designed for financial markets. Meanwhile, major corporations such as Amazon and Walmart have reportedly examined stablecoins as tools for supply-chain payments and global retail transactions. In other words, stablecoins are rapidly evolving from a crypto niche into part of the financial mainstream.
Against this backdrop, Britain’s regulatory trajectory looks increasingly cautious. Ministers have frequently stated their ambition to position the UK as a global hub for digital assets. Yet the policy proposals currently under discussion risk being overly restrictive and, in some cases, misunderstand how stablecoin issuance works.
The strategic risk is clear. If stablecoin innovation consolidates around dollar-denominated tokens operating under US regulatory frameworks, the infrastructure of digital money will be built elsewhere. Sterling stablecoins could support London’s role in global finance and reinforce the international use of the pound. But that opportunity will only emerge if the regulatory environment is competitive.
There are lessons to draw from other jurisdictions. The European Union’s Markets in Crypto-Assets regulation (MiCA) has introduced a comprehensive legal framework for digital assets, providing regulatory clarity and passporting rights across the single market. However, MiCA has also been criticised for imposing heavy compliance burdens that may deter smaller innovators.
In the United States, policymakers are pursuing a different path. Proposed legislation, namely the GENIUS Act, seeks to integrate stablecoin issuers into the regulated financial system while preserving space for private innovation. Alongside this, lawmakers are debating the Digital Asset Market Clarity Act, reflecting an ongoing effort to define how stablecoins should be treated within the broader financial system.
How not to regulate stablecoins
The UK does not need to replicate either model wholesale. But as we argue in a recent research paper, it should avoid introducing rules that inadvertently stifle innovation before the market has had a chance to develop. Here are three of the UK’s regulatory proposals that are particularly concerning.
The first is the concept of universal redemption obligations. Consumer protection is essential, but regulators must recognise how stablecoins operate in practice. Most tokens circulate on secondary markets, meaning many users never redeem directly with the issuer. Designing rules around universal redemption misunderstands this structure and risks imposing unnecessary operational burdens.
Second, stringent capital requirements could create barriers to entry for startups. Much of the innovation in digital finance has historically come from smaller technology firms rather than established financial institutions. If regulatory thresholds are too high from the outset, the UK risks crowding out precisely the entrepreneurs who have driven progress in the sector.
Third, proposals to introduce holding caps on stablecoins could undermine many of their most valuable use cases. Large-scale payments – particularly in business-to-business transactions, corporate treasury management and international trade – often require significant balances. Artificial limits on holdings would severely restrict these applications. There are also questions over how firms would be able to monitor pseudonymous wallet addresses in practice.
Taken together, these measures risk producing a regulatory regime that addresses hypothetical risks while preventing real economic opportunities.
A better approach would be principles-based regulation focused on transparency and resilience rather than overly prescriptive rules. Regulators should prioritise clear reserve backing, robust custody arrangements and transparent reporting requirements, while allowing the market structure and technology to evolve.
Britain has often succeeded by striking precisely this balance. London’s status as a global financial centre was built on combining credible oversight with openness to innovation. Stablecoins present an opportunity to apply that same philosophy to the digital economy.
If policymakers get the framework right, sterling-denominated stablecoins could strengthen London’s role in global finance and reinforce the international reach of the pound.
If they get it wrong, the infrastructure of digital money will simply be built elsewhere.
And once financial infrastructure is established, it rarely moves.
