Major UK Banks Advance Tokenized Deposits Amid BoE Stablecoin Skepticism

In the wake of the Bank of England's warning about stablecoins, several major banks in the UK are forging ahead with plans to introduce tokenized deposits. The Bank of England's governor, Andrew Bailey, has previously advocated for prioritizing the development of tokenization technology over stablecoins.

Tokenization involves creating digital representations of assets such as deposits, stocks, and bonds, and storing them on a blockchain. Proponents argue that this technology can make transactions faster, cheaper, and more secure. Several major banks, including HSBC, NatWest, and Lloyds, have initiated a pilot project to use tokenized deposits for payments through an online market.

Bailey has expressed skepticism about stablecoins, stating in July that while he does not oppose them, he does not understand their necessity. He believes that tokenization technology offers greater value. Stablecoins, which are cryptocurrencies pegged to fiat currencies, have seen a significant rise in popularity. The GENIUS Act, proposed by Donald Trump, provides a clearer regulatory framework for stablecoins and has prompted several U.S. banks to consider entering this market, which is currently dominated by non-bank entities.

On September 25, a group of European banks also announced plans to launch a euro-denominated stablecoin. Bailey has previously warned that stablecoins could lead to funds leaving the banking system, potentially threatening financial stability. In a July interview, he advised banks against issuing their own stablecoins. Although the Financial Conduct Authority (FCA) is not expected to finalize stablecoin regulations until the end of 2026, the Bank of England has clarified that banks can conduct experiments with tokenized deposits within the existing regulatory framework.

A senior official from the UK banking industry noted that while tokenized deposits lack the brand recognition of stablecoins, they represent a significant technological upgrade. Several large banks are currently exploring both technologies. The CEO of Citi Group highlighted in July that the importance of tokenized deposits may surpass that of stablecoins. The UK's tokenized deposit pilot project involves Barclays, Nationwide, and Santander, and will run until mid-2026. The pilot will also test the application of tokenized deposits in mortgage processes and digital asset settlements.

The payment and innovation director at the UK Finance, Jana McIntosh, emphasized that tokenization technology can drive technological change in the financial sector while ensuring that payment activities remain within the regulated banking system.