The Bank of England (BoE) has unveiled a comprehensive strategy centered on tokenization to transform the country's financial infrastructure. Speaking at the City Week 2026 conference in London, the Bank's Deputy Governor for Financial Stability, Sarah Breeden, said the retail payment system would be reshaped and incorporate multiple forms of currency.
According to Breeden, the goal is to establish a multi-layered payment environment consisting of tokenized deposits, regulated stablecoins, and a potential retail central bank digital currency (CBDC). "People should be able to pay with tokenized bank deposits, regulated stablecoins, and potentially a retail CBDC," said Breeden.
Stablecoin regulations to be finalized this year
The central bank plans to release draft regulations for systemic stablecoins next month; final rules are expected to be ready by the end of the year. Since rapid stablecoin adoption could bring risks, temporary caps on the amount of stablecoins in circulation may also be considered in the early stages. Breeden emphasized that shared ledger technology has the potential to make payments both cheaper and faster, adding that smart contracts will make payment processes more efficient through automation.
Banks will be directed towards tokenized deposits
The BoE also wants to include banks in this transformation. Breeden explicitly stated that banks need to innovate in tokenized deposits and that they are working on a next-generation retail infrastructure that will enable interbank payments. Currently, such payments can mostly only occur between customers of the same bank.
On May 18, the central bank and the Financial Conduct Authority (FCA) launched a consultation process for a joint tokenization program based on the Bank-FCA Digital Securities Sandbox. Launched in 2024 and running until January 2029, the sandbox allows firms to establish real trading platforms and clearing systems for tokenized securities. Euroclear, HSBC, and the London Stock Exchange Group (LSEG), along with 16 other firms, are expected to transition to the platform by the end of 2026.
Digital Pound and CBDC studies continue
The Central Bank will also continue to support the UK government's Digital Gilt initiative, a pilot for tokenized government bonds. The results of the BoE's CBDC design phase will be shared with the public this year.
In his speech, Breeden also touched upon the impact of artificial intelligence on the financial system, saying that the bank has taken serious steps to support the responsible adoption of AI, including in agency payments and commerce.
These steps by the UK are not an isolated initiative. On the same day, Japan's ruling Liberal Democratic Party (LDP) officially adopted a strategy to build the country's future financial system on artificial intelligence and blockchain technologies; tokenization, stablecoins, and agency commerce are among the three key components of this strategy. In the UK, Breeden emphasized the need for joint action between the industry and the government, concluding his speech by saying, "We need to show that we are deepening the tokenized finance ecosystem and that it is yielding tangible results."
