How does the Bank of England understand stablecoins and tokenization?

The Deputy Governor of the Bank of England, Sarah Breeden, delivered a speech titled "Modernising Money and Markets" at London City Week 2026 on May 19, 2026, systematically outlining the Bank of England's policy ideas on the future form of money, retail payment systems, stablecoin regulation, tokenized securities markets, and central bank digital currency settlement infrastructure.

Breeden stated that the Bank of England supports the responsible adoption of tokenization technology and believes it can help improve efficiency in retail payments and wholesale financial markets, reduce costs, enhance functionality, while serving financial stability and sustainable growth.

Tokenization can bring tangible efficiency improvements to retail payments and wholesale finance

The Bank of England, FCA, UK government, and industry have already done extensive work on modernizing financial infrastructure and regulations. The UK is the world's fifth-largest economy and one of the largest net exporters of financial services globally, so advancing the modernization of money and markets cannot be rushed but requires time and prudent implementation. She emphasized that the current key is not to revisit the direction but to promote practical, long-term changes based on existing foundations by regulators, government, and industry.

On the technological front, Breeden believes that tokenization can deliver real efficiency gains for retail payments and wholesale finance. Shared ledgers can allow transaction parties to update records almost simultaneously, reducing intermediaries, lowering operational risks, cutting costs, and shortening settlement windows; smart contracts can enhance automation in payments and post-trade processing, such as enabling more flexible conditional payments in retail transactions and automatically handling collateral, coupons, and dividends in wholesale markets; atomic swaps can extend the peer-to-peer exchange mechanisms to more assets and scenarios, enabling synchronized transfer of assets and funds.

Breeden envisions a future retail payment system in the UK that supports multiple forms of currency coexistence. Beyond traditional bank deposits, the public should be able to use tokenized bank deposits, regulated stablecoins, and potentially retail central bank digital currencies for payments. The Bank of England's goal is not to monopolize the market with a single currency form but to ensure, through regulation and infrastructure design, that different forms of money are equally robust and can be exchanged smoothly, maintaining the currency consistency of "one pound is one pound."

In wholesale financial markets, the Bank of England hopes that tokenization can reduce costs, enhance functionality, and support a multi-asset, multi-currency ecosystem. Breeden specifically mentioned that, as a global financial hub, the UK should support the tokenization of real-world assets such as stocks, bonds, funds, and private assets, making issuance, trading, clearing, settlement, and collateral use more efficient. Additionally, given the global nature of UK financial markets, future wholesale market tokenization should continue to be multi-currency open and advance based on international standards, recognition by home regulators, and cross-border regulatory cooperation.

Advancing the UK's next-generation retail payment infrastructure

In terms of specific applications, Breeden cited that in the future, consumers shopping online could pay with regulated systemic stablecoins, with merchants receiving funds instantly, but payments could also be set to "execute only after confirming parcel delivery." For cross-border payments, the UK's retail payment infrastructure should better connect with overseas systems, making personal cross-border remittances faster and cheaper. In wholesale scenarios, companies could automatically receive payments after delivery confirmation; medium-sized enterprises could invest overnight idle funds into tokenized securities and sell them near real-time the next day; multinational corporations could use tokenized collateral to more efficiently meet derivatives margin requirements.

Breeden also mentioned that AI will increasingly integrate with payments and financial markets. For example, AI agents might help users complete tasks like booking vacations, restocking refrigerators, or updating wardrobes; in financial markets, AI trading agents could change how market interactions occur. She stated that the Bank of England is collaborating with international counterparts to study simulation methods to understand how AI agents interact under market stress and how to prevent their amplification of market volatility.

Regarding retail payment infrastructure, Breeden said that last summer, the UK government and relevant regulators announced the establishment of a new public-private partnership to promote the development of the UK's next-generation retail payment infrastructure. The UK Treasury, Bank of England, FCA, and payment system regulators have already formulated the UK retail payment strategy, and the Bank of England is hosting a new Retail Payments Infrastructure Board responsible for translating this strategy into infrastructure design in collaboration with industry. The related designs will soon be open for consultation, with subsequent implementation handled by private sector delivery organizations.

She emphasized that the new retail payment infrastructure will support seamless exchange between traditional and tokenized currencies. The Bank of England will also provide regulatory clarity for banks and systemic stablecoin issuers to foster innovation under clear rules. For banks, the Bank encourages advancing tokenized deposit innovations so that the forms of currency issued by banks can meet future payment needs and ensure that tokenized deposits can be used for payments across different banks, not just within the same bank's customers.

The Bank of England plans to release stablecoin regulation legislation within the year

On stablecoin regulation, Breeden said that the Bank of England is reviewing feedback received from the November 2025 consultation on systemic stablecoins and plans to publish a draft regulation for systemic stablecoins in June 2026, with final rules to be completed within the year. Previously, the Bank of England proposed setting limits on holdings of systemic stablecoins by individuals and businesses during the transition period to prevent rapid adoption of stablecoins from causing bank deposit outflows and impacting bank credit supply. In this speech, Breeden mentioned that the central bank is considering alternatives, such as implementing temporary caps on the total issuance of a single stablecoin and conducting periodic reviews. Such measures could achieve the same financial stability goals while reducing industry implementation costs and allowing businesses more flexibility in high-value payment scenarios.

She also emphasized that banking groups could issue stablecoins through non-deposit, bankruptcy-remote entities, but these stablecoins should be distinguished from bank deposits with different branding to reduce consumer confusion and mitigate the risk of stablecoin holders suffering losses that could transmit to bank deposits and banking groups.

In wholesale markets, Breeden introduced the UK's ongoing Digital Securities Sandbox, jointly developed with FCA. Launched in 2024 and running until January 2029, the sandbox allows firms to establish real operational tokenized securities trading venues and settlement systems under an adapted legal and regulatory framework. The sandbox supports GBP and foreign currency activities, covering assets such as stocks, corporate bonds, government bonds, and investment funds. She revealed that 16 companies are preparing to go live from later this year, including Euroclear, HSBC, and the London Stock Exchange Group.

The Bank of England and FCA also issued a joint consultation on the future of tokenized wholesale markets in the UK on May 18, 2026, seeking industry feedback on the safe adoption of tokenization. FCA stated that UK financial institutions could adopt tokenization and distributed ledger technology with greater confidence; the consultation will close on July 3, 2026, with the regulators releasing a feedback statement afterward.

Breeden also mentioned that the Bank of England supports the UK government’s pilot issuance of the digital sovereign bond instrument DIGIT, which will be the first tokenized sovereign bond issuance project in a G7 country. The digital bonds will be issued through the Bank of England and FCA’s Digital Securities Sandbox. The Bank is also prioritizing assessing whether DIGIT can serve as eligible collateral within the Bank of England’s GBP monetary framework.

Regarding settlement infrastructure, Breeden clarified that as wholesale market tokenization develops, the Bank of England maintains a low-risk appetite for significant reliance on central bank money for wholesale transactions. That is, the core settlement of tokenized securities and wholesale markets should still rely on central bank money. To support this, the Bank is upgrading its RTGS infrastructure to RT2 and gradually extending settlement hours, enabling tokenized wholesale transactions to settle in central bank currency and transitioning toward near 24/7 settlement to support around-the-clock operation of tokenized asset ledgers.