Tokenization Can Lower Expenses and Drive Competition, Says Bank of England Official
The British central banking authority emphasized that digital currency must maintain trustworthiness and interoperability while considering stablecoin regulatory changes and nearly continuous settlement operations to facilitate tokenized financial markets.
The Bank of England is intensifying its attention toward digital currency, with Sarah Breeden, its Deputy Governor, emphasizing tokenization as a promising avenue for cutting expenses, accelerating settlement processes and enhancing competitive dynamics.
During her address at City Week in London on Tuesday, Breeden explained that tokenization — which involves representing both assets and currency on digital ledgers — has the capacity to enhance operational efficiency and expand the capabilities of payment systems and financial markets, as long as trust and interoperability remain intact.
Breeden emphasized that money issued by the central bank will continue to serve as the core foundation, or "anchor," of the nation's monetary framework, even while private sector developments like tokenized deposits and regulated stablecoins continue to gain momentum.
She indicated that the central bank is collaborating with the private sector, governmental bodies and regulatory agencies to establish a comprehensive framework that encourages innovation while safeguarding financial stability.
Alongside traditional bank deposits, people should be able to pay with tokenized bank deposits, regulated stablecoins and, potentially, a retail central bank digital currency (CBDC). More competition, from a wider range of technologies and business models, should lower costs and improve functionality for users.
The BoE's CBDC Academic Advisory Group said in January that "retail CBDC is not strictly required to preserve uniformity, but may play a valuable supporting role, particularly as transactional use of cash declines."
BoE moves to modernize settlement infrastructure
The UK is implementing further measures to equip its financial infrastructure for tokenized assets. On Monday, the BoE put forward a proposal to expand the operational hours of its fundamental settlement infrastructure to achieve near continuous, 24/7 accessibility.
Within the proposal documentation, the central bank indicated that expanded operating hours would facilitate cross-border payment transactions and securities settlement processes as tokenization and additional digital asset innovations continue to advance.
The proposal comes on the heels of Breeden's statements from earlier in the month, in which she noted that the Bank was reevaluating its strategy regarding stablecoins denominated in pound sterling, including the possibility of relaxing restrictions on the amounts consumers can possess. The reassessment aims to minimize obstacles for early users while policymakers work to enhance the UK's standing as a competitive center for digital assets.
The Bank of England has moderated its position on stablecoins in recent months as representatives engage more actively with industry participants and reexamine previous proposals that would have introduced more stringent reserve and backing requirements.