The Bank of England is moving to build a tokenized financial system in the UK, centered on regulated stablecoins, tokenized deposits, and new digital payment infrastructure, Deputy Governor for Financial Stability Sarah Breeden said on Tuesday.
Speaking at London’s City Week 2026, Breeden said the central bank will publish draft rules for systemic stablecoins next month and aims to finalize the framework by the end of the year. These rules are expected to shape how large stablecoin issuers operate in sterling markets.
New retail payment system based on shared ledgers
Breeden said the future retail payment system should support several interchangeable forms of money, including:
- tokenized bank deposits
- regulated stablecoins
- a potential UK central bank digital currency (CBDC)
She argued that a shared ledger model could cut costs and speed up payments by reducing intermediaries in the settlement chain, while smart contracts would enable conditional and automated payments.
The combination of tokenized deposits, stablecoins and a possible CBDC is intended to increase competition between different types of money and improve payment efficiency, she said. The Bank also plans to support AI-enabled payment solutions and other digital financial innovations as part of this shift.
Stablecoin limits and risk controls
Breeden said the upcoming stablecoin regime will likely include temporary issuance limits to manage adoption risks in the early stages, rather than tight permanent holding caps.
The change follows industry feedback that earlier ideas for strict holding limits could have constrained market development. Temporary issuance controls are now seen by the Bank as a more flexible way to contain short‑term risks while allowing room for growth.
At the same time, the central bank will continue pushing financial institutions to integrate tokenized deposits into interbank payment systems, deepening the link between traditional bank money and tokenized forms.
Digital securities sandbox and tokenization push
Earlier this month, the Bank of England and the Financial Conduct Authority opened a joint consultation on a tokenization initiative tied to the Digital Securities Sandbox, which started in 2024 and runs until January 2029.
The sandbox allows approved firms to run live trading and settlement systems for tokenized securities under close supervision. According to Breeden, 16 firms plan to begin operating in the sandbox from late 2026. The group includes Euroclear, HSBC and the London Stock Exchange Group.
Breeden said that exposures to tokenized assets held within this framework will receive the same prudential treatment as equivalent non‑tokenized holdings, as long as the legal rights and underlying risk profiles are the same. That approach is intended to avoid regulatory arbitrage between traditional and tokenized instruments.
Digital gilts and CBDC design phase
The Bank will also continue its Digital Gilt program, a pilot for issuing UK sovereign bonds in tokenized form. Breeden indicated that digital gilts could ultimately support more efficient government funding, though full cost benefits will depend on wider market adoption.
She confirmed that the design phase for a potential UK CBDC will conclude later this year. The findings from that work are expected to guide future policy on whether and how to introduce a digital pound.
The next stage, Breeden said, will require coordinated work between the Bank, other authorities, the government and the private sector to build out a broader tokenized finance framework.
International context and market outlook
On the same day as Breeden’s speech, Japan’s ruling Liberal Democratic Party announced a proposal to orient its own financial system around AI, blockchain, tokenization and stablecoins, underlining parallel reforms in other major economies.
Globally, the stablecoin market is estimated at roughly $290–315 billion in circulation. Sterling‑denominated stablecoins currently represent less than half a percent of that total, suggesting that the UK’s regulatory moves are aimed at creating a new domestic market rather than simply tightening oversight over an established one.
Traders and market participants will be watching:
- the draft UK systemic stablecoin rules due next month, for clarity on issuance limits, backing requirements and operational standards
- the first live activity from sandbox firms from late 2026, which will provide early evidence of how tokenized trading and settlement performs under real‑world conditions
These developments will set the pace and shape of the UK’s move toward a tokenized financial architecture over the rest of the decade.
As regulation evolves, discover how real-world assets may shift on-chain in 2026 with Toobit’s global stablecoins outlook.
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