Bank of England Boosts Focus on Digital Money, Tokenization
Quick Look
- The Bank of England is increasing its focus on digital money, with Deputy Governor Sarah Breeden highlighting tokenization as a way to reduce costs and increase competition.
- The central bank is working on a framework to support innovation while maintaining financial stability and is proposing to extend settlement infrastructure operating hours.
AI-generated summary
Why It Matters
The Bank of England is exploring digital money innovations, including tokenization and central bank digital currencies (CBDCs), to modernize its financial system. This comes as private sector innovations like tokenized deposits and stablecoins gain traction.
The Bank of England is stepping up its focus on digital money, with Deputy Governor Sarah Breeden highlighting tokenization as a potential way to reduce costs, speed settlement and increase competition.
Speaking at London's City Week on Tuesday, Breeden said tokenization — the representation of assets and money on digital ledgers — could improve the efficiency and functionality of payments and financial markets, provided that trust and interoperability are preserved.
Breeden stressed that central bank money will remain the foundation, or “anchor,” of the monetary system, even as private-sector innovations such as tokenized deposits and regulated stablecoins gain traction.
She said the central bank is working with industry, government and regulators to build a framework that supports innovation without undermining financial stability.
“Alongside traditional bank deposits, people should be able to pay with tokenized bank deposits, regulated stablecoins and, potentially, a retail central bank digital currency (CBDC),” she said, according to a transcript of the speech. “More competition, from a wider range of technologies and business models, should lower costs and improve functionality for users.”
The BoE's CBDC Academic Advisory Group said in January that "retail CBDC is not strictly required to preserve uniformity, but may play a valuable supporting role, particularly as transactional use of cash declines."
Related: Crypto awareness tops 80% among young people in UK: Coinbase survey
BoE moves to modernize settlement infrastructure
The UK is taking additional steps to prepare its financial system for tokenized assets. On Monday, the BoE proposed extending the operating hours of its core settlement infrastructure to near 24/7 availability.
In the proposal, the central bank said longer operating hours would help support cross-border payments and securities settlement as tokenization and other digital asset technologies continue to evolve.
An excerpt of the BoE’s proposal to extend settlement hours. Source: Bank of England
The proposal follows Breeden’s comments earlier this month that the Bank was reconsidering its approach to pound-sterling-denominated stablecoins, including whether to ease limits on how much consumers can hold. The review is intended to reduce friction for early adopters as policymakers seek to strengthen the UK’s position as a competitive hub for digital assets.
The Bank of England has softened is stance on stablecoins in recent months as officials engage more closely with industry groups and revisit earlier proposals that would have imposed stricter reserve and backing requirements.
What to Watch
AI outlook — possibilities, not facts
The Bank of England will continue to engage with industry to refine its approach to stablecoins, potentially easing holding limits.
Likely · Within months
The UK's financial system will see increased adoption of tokenized assets and digital payment methods.
Likely · Medium term
Open Questions
- What specific regulatory frameworks will be implemented to support tokenization?
- What are the exact timelines for extending settlement infrastructure operating hours?
- What are the potential impacts of increased competition on existing financial institutions?
- What are the specific reserve and backing requirements being reconsidered for stablecoins?
