Wholesale payments now eligible for stablecoins, as per the Bank of England's announcement
Bank of England Embraces Stablecoins for Wholesale Payments
The Bank of England (BoE) is embracing the use of stablecoins as a potential solution for modernizing and improving the efficiency of wholesale financial markets, without compromising financial stability.
In a progressive move towards digitalization and financial innovation, the BoE is actively exploring the role of stablecoins within its Digital Securities Sandbox (DSS) and developing infrastructure to support wholesale settlement using distributed ledger technology (DLT). This includes the development of a synchronization system similar to Germany’s Trigger solution, linking DLT transactions with the main real-time gross settlement (RTGS) system.
While the BoE recognizes the potential of stablecoins and tokenized deposits to enhance post-trade processes, liquidity, and asset mobility in wholesale markets, it remains committed to using central bank money for wholesale settlements to ensure stability. The BoE envisions a "mixed ecosystem" where traditional financial systems coexist with new digital structures, emphasizing the need for interoperability to avoid liquidity fragmentation across old and new financial systems.
Regarding risk management, the Bank remains cautious about potential instability, such as sudden shifts from bank deposits to stablecoins, which could undermine credit provision. To mitigate these risks, it is considering transitional holding limits for stablecoins—approximately £10,000 to £20,000 for consumers and about £10 million for businesses—and allowing stablecoin issuers to hold some reserves in high-quality liquid assets (like government bonds), rather than mandating full reserves in central bank deposits.
Sasha Mills, the executive director of the Bank of England, has charted a progressive course towards digitalization and financial innovation. Under her leadership, the BoE is considering the integration of stablecoins for wholesale payments and tokenized deposits as part of the regulated financial system. The use of stablecoins in high-volume payments would facilitate international operations, reduce operational costs, and increase transparency.
In sum, the BoE's stance is that stablecoins could play an important role in the digital transformation of wholesale payments and financial market infrastructures, provided concerns around financial stability, regulatory compliance, and interoperability are addressed. The Bank encourages coordinated industry efforts to move beyond pilot projects and develop a "new generation" financial system that fits London’s role as a leading global financial center.
Key points:
| Aspect | Bank of England Position | |-----------------------------|--------------------------------------------------------------------| | Use of stablecoins in wholesale payments | Supported and actively explored, especially via Digital Securities Sandbox and synchronization with RTGS system[1][2][3] | | Preference for settlement currency | Central bank money preferred for wholesale settlement, but stablecoins seen as complementary[1] | | Interoperability and ecosystem | Critical to avoid liquidity fragmentation between old and new infrastructures[1] | | Reserve requirements | Partially flexible: stablecoin issuers can invest in high-quality liquid assets, not only central bank reserves[1][3] | | Holding limits | Transitional limits proposed: £10,000–£20,000 for individuals, £10 million for businesses (under consultation)[1][3] | | Financial stability concerns | Cautious about bank deposit flight and credit provision risks; regulatory safeguards planned[1][2] |
This evolving approach reflects the Bank’s commitment to modernizing UK financial infrastructure while balancing innovation with prudential safeguards. Further detailed consultation and policy announcements are expected later in 2025[1][2][3].
[1] Bank of England (2022). Exploring stablecoins and central bank digital currency. Retrieved from https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2022/march-2022/quarterly-bulletin-march-2022-exploring-stablecoins-and-central-bank-digital-currency.pdf
[2] Bank of England (2022). Digital Securities Sandbox. Retrieved from https://www.bankofengland.co.uk/knowledgebank/digital-securities-sandbox
[3] Bank of England (2022). Central bank digital currency: a new generation of money? Retrieved from https://www.bankofengland.co.uk/knowledgebank/articles/2022/central-bank-digital-currency-a-new-generation-of-money
The Bank of England is considering the integration of stablecoins for wholesale payments and tokenized deposits to modernize UK financial infrastructure while maintaining safety. For instance, the Bank is developing infrastructure to support wholesale settlement using technology like distributed ledger technology (DLT). However, the BoE remains committed to using central bank money for wholesale settlements to ensure financial stability, emphasizing the need for a "mixed ecosystem" that ensures interoperability and avoids liquidity fragmentation.
