Central Banks and Financial Institutions Accelerate Stablecoin Development Amid Regulatory Shifts and Market Demands

Central banks and financial institutions are accelerating the development of stablecoins and digital currencies to modernize financial systems and address evolving market demands. The Bank of England (BoE) is exploring stablecoins for settlement within its digital securities sandbox (DSS), aiming to evaluate their potential in digitizing securities markets. Concurrently, the BoE has outlined a three-stage strategy for a potential digital pound, prioritizing peer-to-peer payments and online commerce acceptance before introducing advanced features [1][2]. The U.S. House has enacted the GENIUS Act, requiring stablecoin reserves to maintain a one-to-one backing with U.S. Treasury securities or demand deposits, while the Anti-CBDC Surveillance State Act blocks the Federal Reserve from issuing retail central bank digital currencies (CBDCs) without Congressional approval, citing privacy concerns [8][9].

Private-sector innovation is also advancing rapidly. Bank of New York Mellon (BNY) and Goldman Sachs (GS) have launched a blockchain-based platform to tokenize money market fund (MMF) shares, creating "mirror tokens" to enhance their utility in digital capital markets. This initiative, built on GS’s private blockchain and integrated with BNY’s LiquidityDirect platform, aims to facilitate seamless transfers and collateral use [3]. Citigroup is evaluating its own stablecoin initiative, leveraging the supportive framework of the GENIUS Act to streamline payments [12]. Meanwhile, the European Central Bank (ECB) is preparing a tender phase for its digital euro project, emphasizing user research and harmonized payment rules across the eurozone [10].

Academic analysis highlights the macroeconomic implications of stablecoins. A U.S. National Bureau of Economic Research (NBER) study argues that stablecoins may reduce demand for traditional dollar reserves, potentially lowering U.S. interest rates while amplifying domestic consumption volatility [4]. Conversely, real-world CBDC adoption has faced challenges. The Cato Institute’s analysis of Jamaica’s JAM-DEX and The Bahamas’ SandDollar CBDCs reveals limited traction beyond government-driven use cases, such as stimulus distributions [5]. Technical hurdles persist for CBDCs, including the Bank of Japan’s struggles to integrate its CBDCs with core banking systems. Proposed solutions include aggregating transactions over time to avoid overwhelming infrastructure during high-volume conversions [7].

Regulatory experiments are expanding globally. The U.K. Treasury is advancing its Digital Gilt Instrument (DIGIT) pilot to test on-chain settlement and interoperability between traditional and distributed ledger technology (DLT) markets [11]. In parallel, the BoE’s public-private model for a digital pound envisions the Bank managing the core ledger while private firms handle user-facing services, reflecting a cautious approach to balancing innovation and oversight [2]. Upcoming forums, such as the CB+DC Conference in the Bahamas, will likely shape further collaboration among stakeholders to address challenges in digital finance [10].

Source: [1] The Payments Newsletter including Digital Assets & ... [2] Digital Pound Design Note – Product Strategy (BoE) [3] Kiffmeister Chronicles - Curated Fintech News [4] Digital Economy, Stablecoins and the Global Financial System (NBER) [5] Analyzing CBDC Adoption in Jamaica and The Bahamas (Cato Institute) [6] Bank of Japan CBDC Experiments Progress Report (English version)(BoJ) [7] U.S. GENIUS Act Signed Into Law [8] House Passes Anti-CBDC Surveillance State Act, Blocks Fed Digital Dollar Work (The Street) [9] Third Progress Report on the Digital Euro Preparation Phase (ECB) [10] U.K. Digital Gilt Instrument (DIGIT) Pilot Update (HMT) [11] Citigroup looks to Issue Its Own Stablecoin to Smooth Payments (Bloomberg).