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Bank of England on Tokenization of Money: “Shape of Things to Come”

In a speech earlier this month, the Deputy Governor of the Bank of England outlined four areas where the tokenization of money is now actively being explored by the United Kingdom’s central bank.

Earlier in April, Deputy Governor of the Bank of England, Sir John Cunliffe, gave a speech at the Innovative Finance Global Summit in London. Titled ‘The shape of things to come: innovation in payments and money’, it looked at four areas of tokenization that the bank is currently exploring: stablecoins as a payment vehicle, tokenization of commercial bank deposits, development of a ‘Digital Pound’, and a framework to ensure that these digital money systems are robust and uniform.


Noting that stablecoins “offer the possibility of greater efficiency and functionality in payments,” Cunliffe pointed out that “they currently sit outside most of the regulated framework and it is extremely unlikely that any of the current offerings would meet the [required] standards for robustness and uniformity.”

This is not to say that there is no place for stablecoins, but that their use as a vehicle for systemic payments would require improvement to meet the standards of commercial bank money used for traditional payments. This would include the need to be backed by high-quality and liquid assets (robustness), and the ability to seamlessly exchange Sterling-denominated stablecoins for other forms of Sterling on demand and with no loss of value (uniformity).

Following the implementation of the Financial Services and Markets Bill, which is currently being assessed by the upper house of the UK’s government, the bank plans to consult with the Financial Services Authority to develop a regulatory system for the use of stablecoins as a vehicle for payments later this year.

Deputy Governor of the Bank of England, John Cunliffe speaking at the Innovative Finance Global Summit in London
Deputy Governor of the Bank of England, John Cunliffe speaking at the Innovative Finance Global Summit in London. Source: Quant

Tokenization of commercial bank deposits

According to Cunliffe, the second area of interest, the tokenization of commercial bank deposits, is a far simpler prospect than non-bank stablecoins in terms of regulation. Bank deposits are already robust and uniform money in the UK, with a regulatory regime, insurance and resolution procedures to protect depositors.

Observers has already looked at several proposals for the tokenization of bank deposits, including the Swiss bankers’ deposit token and the Regulated Liability Network. Cunliffe notes that the majority of bankers’ proposals regarding tokenized deposits have centered on wholesale transactions, but that there is also now some interest in retail deposits.

Blockchain technology could allow such deposits to be freely traded, whereas a current interbank transfer ultimately requires a settlement between the two banks on the Bank of England’s books. This would require new regulations to specify how such deposits were insured in the event of a bank failure, as the owner may not be a customer of that particular bank.

Such issues could be dealt with using smart contracts, but the important thing, according to Cunliffe, is to develop the approach for tokenized deposits in parallel with the regime for payment stablecoins, to allow “banks and non-banks alike, that want to develop payment solutions using new technologies to understand clearly what is possible and what is required in the respective regulatory regimes.”

Digital Pound

Finally, while no decision has currently been made on whether to implement the Digital Pound, the Bank’s current assessment is that it is likely to be needed if current payment and monetary trends continue. If, or likely when, this step is taken, the Bank of England’s CBDC is “envisaged as a general purpose retail digital currency for use by households and firms in everyday transactions.”

It is encouraging to hear that the Bank of England is so positive about the use of digital money, and actively looking at ways to integrate it into the current financial system. We shall continue to Observe with interest and see how this approach pans out against that on the other side of the Atlantic Ocean.