Key Takeaways

The Bank of England is making tokenized bank deposits, not stablecoins, the centerpiece of its digital finance strategy.

Governor Andrew Bailey has softened his stance on stablecoins while maintaining that tokenization is the more valuable innovation.

Top U.K. banks including HSBC, NatWest, Lloyds, and Barclays are piloting tokenized deposits for digital payments and mortgage refinancing through 2026.

Britain is placing tokenization at the core of its digital finance strategy, as the Bank of England (BoE) moves to limit the use of stablecoins while encouraging banks to experiment with tokenized deposits.

The shift follows a softening of BoE Governor Andrew Bailey’s stance on stablecoins after he claimed tokenizing traditional deposits offered greater value than stablecoins.

The BoE is preparing to cap stablecoin holdings for individuals and businesses to strengthen oversight of digital money and protect financial stability.

Under draft proposals, individuals could hold between £10,000 and £20,000 ($13,400–$26,800) in stablecoins, while companies could hold up to £10 million.

However, the central bank is now expected to grant exemptions for certain crypto firms, such as exchanges and custodians, marking a softer approach after pushback from the industry, Bloomberg reported.

The BoE also plans to adjust its Digital Securities Sandbox, a controlled testing environment for blockchain-based issuance and trading, to allow limited use of regulated stablecoins for settlement.

The changes would initially permit firms to use non-sterling stablecoins in sandbox trials, giving the central bank a chance to observe real-world use cases as it develops its policy , the report said, citing people familiar with the matter.

Governor Andrew Bailey, long a skeptic of stablecoins, previously described tokenization as a “more valuable innovation” over stablecoins because it keeps money within the regulated banking system.

In July, Bailey said he was “not against stablecoins” but struggled to “see the need for them.”

However, on Oct. 1, writing in the Financial Times, he acknowledged that it would be “wrong to be against stablecoins as a matter of principle,” noting their potential to “drive innovation in payment systems both at home and across borders.”

Despite this softening tone and moderation in the BoE’s stance, the broader approach still seems to be pursuing tokenisation as a frontrunner.

Leading U.K. banks, including HSBC, NatWest, and Lloyds, have launched a pilot program using tokenized deposits for online marketplace payments.

The initiative will run until mid-2026 and explore applications in mortgage refinancing.

HSBC’s global head of payments solutions, Manish Kohli, said the project aims to make tokenized deposits interoperable between banks.

Industry body UK Finance recently noted that tokenized deposits could achieve adoption more quickly than stablecoins, as they are issued by regulated banks with large depositor bases.

“Tokenized deposits are likely to be the way that a much wider tranche of financial institutions get involved in the digital asset space,” wrote William Lee, an analyst at UK Finance.

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