Confused by the stablecoin versus CBDC debate? There’s a third way - and the Bank of England is right to call it out.
There’s a saying in finance: a payment is a payment is a payment. It reflects how, for most people, the mechanics of money movement are invisible - we just expect it to work. But beneath the simplicity of a tap on a card reader or a click in a bank
app lies a complex web of infrastructure designed to keep payments safe, fast, and reliable - and it’s a web that’s constantly evolving.
Over the past few years, digital innovation has reshaped finance and payments. One area drawing sharp interest is new digital money. Across the globe, governments and regulators are working to understand the opportunities and risks of these new forms of
money. Receiving most headlines are stablecoins - crypto-style digital currencies designed to keep a steady value, typically backed by traditional currencies like pounds or dollars.
National central banks have also been considering their role in this evolution by exploring central bank digital currencies (CBDCs), which are essentially digital versions of the money (like cash) that they issue. The US has just given its stamp of approval
to stablecoins via the GENIUS Act. Meanwhile, the European Central Bank is eyeing the creation of its own CBDC in the form of a ‘digital euro’ to unify payments across the eurozone.
In the UK, both options are under consideration. The Financial Conduct Authority (FCA) is shaping a regulatory framework for stablecoins and cryptoassets, and the Bank of England is exploring the design of a digital pound - a central bank digital currency
that would be used as a complement to physical cash.
But outside of stablecoins and CBDCs, there is another option under consideration, one that builds on the very foundation of money we already use and trust:
tokenised commercial bank deposits.
These are digital versions of the deposits we hold in our bank accounts, enhanced with new capabilities thanks to the same technologies that have enabled stablecoins, such as distributed ledger technology. However, despite utilising some of the same technologies,
stablecoins and tokenised deposits are very different.
For customers, stablecoins are something they have to make an active decision to purchase and use. Today, they are most often used for funding cryptoasset transactions or sending money abroad. Tokenised deposits, on the other hand, don’t require customers
to buy unfamiliar assets or switch to new platforms. Customers will continue to benefit from all the deposit protections they have today with their bank.
Tokenised deposits offer the same security and familiarity of regular bank money, but with added features such as
programmability - which in practice means better functionality, giving customers more control and security with their money. For example, when buying goods from online marketplaces, the funds can be locked until the customer confirms they’re
satisfied with what they’ve received. These benefits could be particularly helpful in reducing fraud and giving customers greater confidence and control when transacting digitally.
Tokenised deposits could also play a meaningful role in the digitalisation of the UK’s capital markets, enabling safe, reliable end-to-end delivery versus payment for digital securities with settlement certainty.
There are also strong economic stability benefits. As Andrew Bailey, Governor of the Bank of England, pointed out at Mansion House, innovation in this form of money continues to “tie payments directly to the creation of credit in the economy,” which neither
stablecoins nor CBDCs would preserve. Another speech by Bailey, in June in Kyiv, also made clear that tokenised deposits are helpful in preserving the so-called
singleness of money - the idea that different forms of money must be exchangeable with each other at par. For the Bank, this is a critical factor in considering where and how new forms of money should function.
Some major banks have already made forays into this space, spotting efficiency gains for their customers. However, for a new payment system to succeed, it needs broad adoption - by banks, businesses, and consumers alike. That’s why UK Finance is bringing
banks together to explore the potential of a platform for tokenised deposits - not just for retail payments, but also for unlocking digitalisation in capital markets.
Ultimately, it’s likely that all these new forms of digital money will co-exist in a future
multi-money world. It’s not a zero-sum game, and the UK should strive to actively benefit from all these growing markets where it can, while ensuring that broader financial stability issues are understood and managed.
But creating next-generation domestic payments infrastructure that leverages tokenised deposits is an area where the UK can take a global leadership role. The Bank of England and several UK banks are already active participants in the BIS’s Project Agorá,
which is exploring how tokenisation can enhance wholesale cross-border payments too.
Tokenised deposits aren’t a leap into the unknown. They’re a smarter evolution of the money we already use - one that builds on trust, accelerates innovation, and puts consumers first. In the race to modernise money and payments, the UK could lead not by
chasing novelty, but by championing the evolution of what already works.