The Bank of England opens the door to stablecoins for wholesale payments.

The Bank of England is considering integrating stablecoins for wholesale payments, as it seeks to balance financial innovation and stability with regulatory transformation.

The Bank of England is open to moving toward digitalization and financial innovation. Sasha Mills, its chief executive, has charted a progressive course that masterfully balances the need for technological innovation with essential financial stability.

In a recent speech, Mills said that stablecoins are emerging as a viable tool for modernizing wholesale payments, and the bank is open to the range of opportunities this innovation can offer to optimize the British and global financial system.

Regulatory Opening to Stablecoins: A Historic Regulatory Shift

Sasha Mills has made it clear that the Bank of England no longer views stablecoins with suspicion, but as a potential catalyst to transform wholesale payments. In his speech, stressed that the institution will adopt a more flexible and open regulatory approach to safely explore and leverage the benefits of new technologies and ensure they coexist with existing ones. 

While financial stability remains the top priority, the Bank of England now recognizes the valuable role stablecoins can play in modernizing payments infrastructure, enabling faster and more efficient transactions without putting the financial system at risk.

"We view the digitalization of wholesale financial markets as a way to improve their functioning and efficiency.", Assured. 

Mills' and the Bank's stance represents a significant shift from previous, more restrictive positions, which severely limited the use and development of asset-backed digital currencies. 

Mills emphasized that innovation and stability are not polar opposites and, on the contrary, must coexist to move toward a more robust financial system adapted to the digital age. By considering the controlled use of stablecoins in wholesale payments, the Bank of England is opening the door to an ecosystem where blockchain technology and traditional finance can effectively integrate.

Stablecoins, an efficient and secure solution for real-time wholesale payments

Stablecoins are digital currencies based on blockchain technology, whose value is linked to stable assets, such as fiat currencies or bonds, which gives them a lower volatility compared to other cryptocurrenciesThis attribute makes them ideal for use in high-value transactions within wholesale markets, where trust and security of value are essential.

In wholesale payments, which involve significant transfers between large financial institutions or businesses, speed, transparency, and security are paramount. Stablecoins offer the ability to settle trades in near real time with lower operating costs, especially if used on properly regulated public or private blockchain infrastructures. Therefore, these digital currencies represent a true innovation compared to traditional, slower and more expensive systems, which often require days to complete transactions.

The Bank's dual position: innovation with clear limits

Although the Bank of England is showing a greater openness to technological developments, it also maintains a firm commitment to financial stability. 

Mills has reiterated that, despite the openness toward stablecoins, central bank money must remain the primary settlement asset in the financial system. This means that, although stablecoins play a more prominent role, They will not replace the money issued by the bank central, thus ensuring the confidence and solidity of the system.

To mitigate risks, the Bank plans to establish certain limits on the holding and use of stablecoins. Mills said that, if stablecoin use is approved, limits of between 10.000 and 20.000 pounds (approximately $13.000 and $27.000 USD) have been considered for retail clients, while for businesses, these limits could reach up to 10 million pounds (equivalent to $13.584.000 USD).

These measures seek to prevent massive bank deposit outflows that could affect credit provision, while maintaining a healthy balance between innovation and financial security.

Tokenized deposits: the other big technological investment

Along with the advancement of stablecoins, the Bank of England is also intensively exploring the integration of tokenized deposits as part of the regulated financial system. These deposits are digital representations of commercial bank money, recorded on programmable ledgers that allow for real-time on-chain settlement. This technology promises to combine the efficiency and speed of digital transactions with the protection and credit generation offered by traditional deposits.

The Bank is confident that tokenized deposits will coexist with and complement stablecoins, strengthening the financial system and enabling new functionalities within a secure and scalable regulatory framework.

“Asset tokenization (the digital representation of financial assets using Distributed Ledger Technology or DLT) and smart contracts on programmable, shared ledgers can deepen existing markets, open new ones, and transform the way asset classes, capital, and balance sheets are mobilized within the financial system.”, Mills pointed out. 

Regulatory innovation for a digital financial market

The Bank of England's regulatory opening to stablecoins and tokenized deposits represents a technological breakthrough that could trigger profound transformations in wholesale markets. The possibility of using stablecoins in high-volume payments would facilitate international transactions, reduce operating costs, and increase transparency.

Furthermore, the Bank has stated that it is considering how these technologies can be integrated with blockchain infrastructures that act as connectivity layers, without compromising the security or regulatory requirements of private systems. This hybrid integration has the potential to generate a more agile, secure, and competitive financial ecosystem.

Mills concluded his speech with a clear call to move beyond isolated demonstrations and work together with the industry to build a new generation of financial services that maintain London's prestige as the heart of the global financial system, thus driving a digital revolution.