UK Banks Press Ahead with Tokenised Deposits Despite Bank of England’s Stablecoin Caution

UK banks are advancing with plans to launch tokenised deposits, even as the Bank of England (BoE) has expressed caution regarding the issuance of stablecoins. The BoE has warned that allowing banks to issue their own stablecoins could undermine financial stability and lead to a fragmentation of the monetary system. In response, banks are exploring tokenised deposits as an alternative, aiming to digitise traditional deposits without creating new forms of money.

Tokenised deposits involve representing existing bank deposits on a blockchain, allowing for faster and more efficient transactions. Unlike stablecoins, which are typically pegged to assets like the US dollar, tokenised deposits are backed by the bank’s reserves, maintaining their value in line with traditional deposits. This approach aims to offer the benefits of digital currencies while mitigating the risks associated with stablecoins.

The BoE’s caution stems from concerns that the widespread use of stablecoins could bypass traditional banking systems, potentially leading to a loss of control over monetary policy and increased risks of financial instability. By focusing on tokenised deposits, banks seek to innovate within the existing regulatory framework, ensuring compliance with financial regulations while exploring the advantages of blockchain technology.

As the financial industry continues to explore digital currencies, the debate between stablecoins and tokenised deposits highlights the balance between innovation and regulatory oversight. The outcome of this discussion will shape the future of digital finance in the UK and potentially influence global trends in banking and monetary policy.