Bank of England’s Deputy Governor, Sir Jon Cunliffe, recently spoke at the Innovative Finance Global Summit in London about the increasing role of tokenization in the modern economy. Currently, the Bank of England is investigating the implementation of tokenization in bank money, non-bank money, and central bank money, in addition to analyzing the potential interactions of tokenized assets.
While stablecoins offer greater efficiency and functionality in payments, Cunliffe stated that none of the current offerings meet the standards of robustness and uniformity applied to commercial bank money and existing payment systems. After the Financial Services and Markets Bill is passed, the central bank intends to cooperate with the Financial Conduct Authority to establish regulations.
Deposit tokens, which are tokenized bank deposits, provide a more straightforward alternative to non-bank stablecoins and could enhance the competitiveness of bank deposits against non-bank payment coins. Nonetheless, regulatory hurdles, including deposit insurance and anti-money laundering policies, persist as deposit tokens would be settled without the intervention of central bank currency.
A UK central bank digital currency may be necessary if current trends in payments and money continue. The introduction of a digital pound could serve as a stabilizing force in the economy, comparable to the current role of physical currency, and would grant various innovators access to a diverse platform. Cunliffe believes machinery could be created to ensure that wholesale tokenized transactions could settle in central bank money thanks to a digital pound, adding to financial stability.
Cunliffe also mentioned that upgrades underway could potentially allow for synchronizing tokenized transactions with the British central bank’s real-time payment system. The United States Federal Reserve has recently announced the creation of FedNow, a new instant payment system.