BoE sees tokenization, stablecoins relative to financial system

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A leading Bank of England (BoE) executive has pointed to how tokenization and stablecoins can help provide the foundation of the next financial system, with the appropriate regulation and support in place.

Sasha Mills, executive director of financial market infrastructure at the BoE, gave a speech discussing building a “mixed ecosystem” digital financial system featuring tokenization, stablecoins, and distributed ledgers alongside the existing system. 

Speaking at City Week 2025 in London on July 2, Mills praised the benefits afforded to financial markets by tokenization and stablecoins, while outlining the BoE’s view of digitization more broadly.

BoE wants new structures

Mills noted that the way information flows around the financial system has largely remained unchanged in the modern age—an “analogue market” in a digital world. For example, many of the processes that undergird the financial system are still centered around an “end of day” that is “increasingly at odds with a 24/7 global financial system.”

Mills suggested that the solution is “building a digital financial system that realises the benefits of new technologies, coexists with existing technologies, and supports innovation.”

One such solution is having a “digitally compatible or digitally native means of payments with minimum credit, market and liquidity risk.” In this regard, she pointed to the BoE as the first central bank to onboard a distributed ledger technology (DLT)-based private payments operator in Fnality.

Mills also highlighted the United Kingdom’s Digital Securities Sandbox (DSS)—created to facilitate the use of developing technology such as DLT in issuing, trading, and settling securities—as an example of the BoE exploring and allowing for new market structures.

One notable use case to come out of the DSS thus far is the U.K. government’s Digital Gilt pilot (DIGIT), which will issue government debt on a distributed ledger. 

According to Mills, examples such as this have led to an uptick in “new entrants and incumbents alike entering the [DSS] regime.” 

She went on to say that the BoE sees the digitalization of wholesale financial markets “as a way to improve their function and efficiency through the use of new and innovative approaches to technologies and using data.” 

One such innovative approach is tokenization.

Tokenization is the future

Tokenization is the digital representation of financial assets using DLT, the underlying technology behind blockchain. 

In her speech, Mills highlighted how some firms are exploring tokenization to make moving assets around the financial system more straightforward by removing operational and technical barriers. 

“Tokenisation of assets and smart contracts on programmable and shared ledgers can deepen existing markets, unlock new ones, and change how asset classes, capital, and balance sheets can be mobilised within the financial system,” said Mills. “UK authorities need to legitimise the utility of tokenised assets and payments to safely support growth in the financial system.” 

She gave the example of ‘intraday repos’—transactions that open and close on the same day, with the participants specifying the opening and closing times—as an area where tokenization can provide value.

Another is tokenized deposits—digital representations of commercial bank money recorded on programmable ledgers, which are emerging as a promising innovation within the regulated banking system. 

According to Mills, banks are considering tokenized deposits to explore real-time, on-chain settlement while preserving the protections and credit creation capacity of traditional deposits. 

As David Bailey, executive director of Prudential policy at the BoE, noted in June, the central bank is actively exploring how tokenized deposits can integrate with initiatives like the DSS and the National Payments Vision to enable “both incumbent and new firms to compete while ensuring that customers are able to use different forms of digital money with confidence.”

In her speech, Mills also pointed out that asset tokenization can allow for the “rationalization of processes and systems” by normalizing how asset classes are represented and allowing smaller portions of these assets to be mobilized, hinting at the benefits of fractional ownership that blockchain tokenization affords.

Mills noted that the BoE will be consulting on the U.K.’s systemic stablecoin regime, following up on a discussion paper on systemic retail stablecoins published in November 2023. 

Stablecoins remain unregulated in the U.K., but the country’s top finance sector watchdog, the Financial Conduct Authority (FCA), recently ramped up efforts to produce a framework for the asset type. This proposed framework, while not finalized, would place so-called “systemic stablecoins”—stablecoins considered large enough to be of potential risk to the broader financial system—under the purview of the BoE.

When it comes to the BoE’s regime, Mills said “it’s important to emphasise that when designing the Bank’s proposed requirements, we tried to be forward-looking and consider what standards stablecoins would need to meet.” 

In somewhat of a U-turn, one standard that stablecoins apparently no longer need to meet is that all of the backing assets have to be invested in unremunerated central bank deposits—money that banks are required to keep at the central bank, but don’t earn any interest on.

According to Mills, despite the BoE initially proposing this requirement, in consultation, it was found that it “would not result in a viable business model.”

Instead, she said, the BoE is now “minded to allow for a proportion of backing assets to be remunerated,” by allowing a proportion of backing assets to be invested in “High Quality Liquid Assets (HQLA).” 

According to Mills, the BoE believes this will support innovation in the U.K. while maintaining confidence in money and allowing for a smoother transition from FCA to central bank requirements within the future U.K. stablecoin regime.

Furthermore, she confirmed that the BoE was considering introducing holding limits for systemic stablecoins, likely to be around £10,000-20,000 (around $13,000-$27,000) for individuals and £10 million (around $13 million) for businesses. 

These limits would be transitional and allow the financial system to adjust to new forms of digital money. However, Mills said the BoE was still engaging with the industry and listening to feedback, so these proposals have not been finalized. 

Relatedly, in another uncharacteristic embracing of stablecoins, Mills said the BoE was “open-minded” to stablecoins being able to provide innovation that could also be useful for wholesale markets.

“The Bank has always been clear that central bank money should be the primary settlement asset in the financial system, and we are innovating central bank money to ensure this remains the case,” she said. However, she went on to say that the BoE was “considering the role that stablecoins could play in supporting innovation in the Digital Securities Sandbox.”

Mills said the central bank will publish further information on this later in the year.

Warnings from the past

Among her praise and optimism for all things digitization, Mills also cautioned that while the foundations provided by the BoE’s current efforts are solid, particularly with regard to tokenization and stablecoins, much still needs to be done to graduate to a financial system that can deliver faster and cheaper settlement.

She also pointed to the hard learnt lessons of the past that have taught how a financial system is only as good as people’s trust in it.

“Money requires confidence to support economic activity and growth in good times and bad. A lack of trust in money speaks to financial instability, as we’ve seen countless times in history,” said Mills. “Participants in real economy and financial transactions require certainty that settlement is final… Without that, we might see cascading failures in leveraged markets.”

Thus, any new system or ecosystem built on innovative technology should have the protection of these principles at its core, if it is to maintain financial stability, “adhere to same risk, same regulatory outcome and give space to innovators to compete to deliver solutions. That is what we are here to ensure,” said Mills.

Concluding her comments to the City Week event, the BoE’s executive director of financial market infrastructure said that the central bank wants to continue working with industry to “start building on the foundations we, and others, have put in place.”

She added that “it is time to move away from talking about potential and one-off demonstrations of the technology, and for all of us to start working together to deliver a new generation of the financial system that is befitting of London’s place as the heart of the global financial system.”

Watch: Richard Baker on engineering a smarter financial world with blockchain