Britain is putting tokenization at the centre of its digital finance transformation, with the Bank of England (BoE) preparing to restrict the use of stablecoins while urging major banks to experiment with tokenized deposits. The move underscores the UK’s push to modernize financial systems through regulated digital innovations rather than unregulated cryptocurrencies.
Under draft BoE proposals, individuals may be limited to between £10,000 and £20,000 ($13,400–$26,800) in stablecoins, while businesses could hold up to £10 million. The plan aims to strengthen oversight of digital money and maintain financial stability. However, following industry feedback, the BoE is expected to allow exemptions for some crypto exchanges and custodians, Bloomberg reported.
The central bank also intends to adapt its Digital Securities Sandbox, a blockchain testing environment, to include limited use of regulated stablecoins for settlements. This would initially allow firms to trial non-sterling stablecoins, enabling the BoE to monitor their real-world applications before expanding regulation.
Governor Bailey Favors Tokenization Over Stablecoins
Governor Andrew Bailey, once a vocal critic of stablecoins, now describes tokenization as a “more valuable innovation” because it keeps money within the regulated banking system. While maintaining caution, Bailey recently acknowledged the role of stablecoins in driving innovation across payment systems.
Writing in the Financial Times on October 1, Bailey said it would be “wrong to be against stablecoins as a matter of principle,” signaling a measured shift in tone. Yet, the BoE’s strategic focus remains firmly on tokenized deposits as the preferred model for digital money.
UK Banks Launch Tokenized Deposit Trials
Major UK banks, including HSBC, NatWest, and Lloyds, have begun a pilot program testing tokenized deposits for digital marketplace payments, running until mid-2026. The trials will also assess how tokenized assets could streamline mortgage refinancing.
According to HSBC’s global head of payments solutions, Manish Kohli, the project aims to ensure interoperability between banks using tokenized deposits. Industry group UK Finance added that tokenized deposits are more likely to gain adoption than stablecoins since they are issued by established, regulated banks with extensive 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,” noted William Lee, an analyst at UK Finance.
