UK Plans New Role for Bank of England to Support Digital Money
The UK government plans to give the Bank of England a new secondary objective to support innovation in payments and digital money, including stablecoins.
Financial stability would remain the central bank’s main priority, while the new role would encourage regulation to keep pace with developments such as tokenization and digital payments.
The Bank of England would also report to Parliament each year on its progress. The move comes as the UK works to create clearer rules for stablecoins and bring the wider crypto sector under financial regulation.
What could a next-generation monetary system based on tokenisation look like? In practice, stablecoins and tokenised deposits could coexist, provided their roles are clearly delineated and safeguards are in place.
Tokenised deposits should carry the bulk of day‑to‑day payments and wholesale settlement, within prudential perimeters and with settlement in central bank money.
Stablecoins may serve specialised roles – for instance, in decentralised lending pools. But they should do so under robust, transparent regimes that enforce par redemption for payment use. Alternatively, they could be treated explicitly as investment products with appropriate conduct and disclosure rules. Legislation and further regulations are taking a stance on this in many major jurisdictions.
As the BIS argued in its Annual Economic Report this year, a pragmatic course for policy should comprise the following:
- Integrating tokenisation into the two‑tier architecture, anchored in central bank money.
- Setting internationally consistent requirements for stablecoin arrangements that address shortcomings while allowing useful, well designed applications to expand.
For central banks, three priorities follow from moving towards a tokenised financial system.
- First, anchor singleness on programmable rails. Central banks can provide or enable access to central bank money on tokenised platforms – whether through links to existing reserve accounts or tokenised reserves – to preserve par settlement and elasticity.
- Second, promote interoperability and integrity. The aim is to support common technical standards, governance frameworks and data rules that let networks interoperate safely, domestically and across borders. Central banks can also strengthen cross‑border supervisory cooperation and information‑sharing to close gaps around illicit finance. Admittedly, this is generally an area for other authorities, such as financial intelligence units. And we must acknowledge that addressing financial integrity risks in decentralised ecosystems remains challenging. New tools and approaches may be needed to effectively apply AML/CFT objectives to this environment.
- Third, take a holistic, system‑wide perspective. We must continue to assess how design choices affect credit supply, financial stability and monetary transmission. For advanced economies, widespread stablecoin adoption could raise bank funding costs and shift intermediation towards non‑banks, potentially making credit provision more procyclical. These effects appear modest in model‑based scenarios, as presented in this year’s Annual Economic Report, but they warrant close monitoring, especially under stress. Kristalina will turn to the implications for emerging market and developing economies, where foreign currency stablecoins raise dollarisation risks and can link crypto rails to FX markets. A broader lesson, however, applies to all: sound macroeconomic policies and efficient domestic payment systems are the best bulwark against undue “stablecoinisation”.
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