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Centre for Financial Technology, ³Ô¹ÏºÚÁÏ Business School & Centre for Cryptocurrency Research and Engineering, ³Ô¹ÏºÚÁÏ

The Problem:

The UK faces a growing strategic risk in the global digital money landscape. Despite ambitions to be a world-leading cryptoasset hub, the UK remains without a credible GBP-pegged stablecoin or a domestic issuer of global significance. This matters beyond the digital assets sector: London's status as the world's pre-eminent foreign exchange hub (handling over 38% of global FX trading) is increasingly contingent on its ability to remain at the frontier of financial infrastructure innovation. As digital assets and tokenised finance become more deeply embedded in global capital flows, the absence of a credible GBP stablecoin risks undermining sterling's role in international markets and eroding the competitive foundations on which London's FX dominance rests.

Over 99% of stablecoins by market value are pegged to the US dollar, leaving UK businesses and consumers defaulting to USD-denominated instruments, exposing them to unnecessary foreign exchange costs and accelerating the marginalisation of sterling in the digital economy. Meanwhile, competitors have moved decisively: Japan, Singapore, the EU and the US have all enacted stablecoin regulatory frameworks, while the UK remains at consultation stage. The cost of continued delay, to competitiveness, monetary sovereignty, consumer protection and financial stability, is mounting rapidly.

The Research Design

Co-produced by CFT and ³Ô¹ÏºÚÁÏ's Centre for Cryptocurrency Research and Engineering, the report brought together expertise across banking, capital markets, financial regulation and blockchain infrastructure. The research was deliberately multi-layered in its methodology:

• Monetary theory: situating stablecoins within the hierarchy of money using the Mehrling-Pozsar "money view" framework, from central bank reserves through commercial bank deposits to shadow money instruments, to assess systemic risk and peg stability
• Quantitative market analysis: tracking the growth, market capitalisation, reserve composition and adoption trends of USD- and EUR-pegged stablecoins from 2015 to September 2025, using CoinGecko and Chainalysis data, and mapping stablecoin purchase volumes by country and region
• Macro-financial modelling: drawing on academic literature to assess the systemic implications of stablecoin adoption for bank deposit displacement, Treasury market dynamics, credit creation and monetary sovereignty, including analysis of liquidity coverage ratios, capital buffer requirements and contagion risk
• Comparative regulatory analysis: mapping stablecoin frameworks across the EU (MiCA), US (GENIUS Act), Singapore, Japan and Hong Kong against the UK's FCA and Bank of England proposals, assessing design trade-offs around reserve requirements, interest-bearing features, infrastructure access and supervisory coordination
• Industry and policy engagement: incorporating perspectives from Goldman Sachs, Tensant Securities, and leading academic experts 

The Results

The research found that the UK's regulatory approach is fragmented, overly cautious and increasingly out of step with global peers, with direct implications for London's position as a global financial and FX centre. Key findings include:

• USD-pegged stablecoins have grown from a single instrument in 2015 to 176 stablecoins with a combined market capitalisation exceeding $280 billion by September 2025; EUR-pegged stablecoins remain marginal at $0.54 billion,  illustrating the structural challenge facing any GBP alternative in the absence of decisive policy action
• As stablecoins become increasingly embedded in cross-border trade settlement, FX transactions and digital capital markets, London's role as the world's leading FX hub is directly exposed to the absence of a credible GBP-denominated alternative; without one, sterling risks being progressively bypassed in the digital layer of global finance
• The Bank of England's proposal to require systemic stablecoin issuers to hold 100% reserves in unremunerated central bank deposits would make GBP stablecoin issuance commercially unviable and uniquely disadvantaged relative to every other major financial centre
• The FCA's proposed ban on interest-bearing stablecoins risks driving users toward offshore or DeFi alternatives with significantly weaker consumer protections, and distorting competition as commercial banks enter stablecoin issuance under different regulatory frameworks
• Academic modelling indicates that a combined capital buffer of 1% and a 30% liquidity requirement would reduce stablecoin issuer default probability to approximately 0.05 basis points per year — suggesting that proportionate, risk-based regulation can deliver stability without the commercially prohibitive requirements currently proposed
• Continued regulatory delay risks "digital dollarisation" — a structural dependence on USD-linked systems beyond the reach of UK monetary and regulatory authorities — and the progressive marginalisation of sterling in international digital capital flows, with long-term consequences for London's competitiveness as a global financial centre

The Impact

The report was launched in September 2025 to significant national and international attention, generating coverage in the Financial Times, Bloomberg, Reuters and Politico, and BBC Radio 4 interviews. CFT researchers subsequently presented findings at the House of Commons, at roundtables with the EU Commission on MiCA, and at events with ADGM and ADIA in Abu Dhabi. The research directly informed live UK and EU regulatory debate at a critical juncture, offering four concrete policy recommendations: accelerating framework development for GBP-linked stablecoins; resolving FCA and Bank of England supervisory coordination; creating positive incentives for high-quality issuers to establish UK operations; and enabling qualified stablecoin issuers to access core UK payment infrastructure. It stands as a defining example of CFT's capacity to produce rigorous, independent, cross-disciplinary research, bridging academic theory, market evidence and policy practice, that shapes consequential decisions at the highest levels of government and industry.

Co-produced by the Centre for Financial Technology and the Centre for Cryptocurrency Research and Engineering, ³Ô¹ÏºÚÁÏ. Published September 2025.