Bank of England Pushes Tokenization Plans to Modernize UK Finance
The Bank of England is ramping up its efforts to modernize the UK financial system through tokenization, with Deputy Governor Sarah Breeden outlining a vision for a more digital and programmable payments landscape.
Speaking at the City Week 2026 conference in London on Tuesday, Breeden said the future of retail payments in the UK should support several interoperable forms of digital money, including tokenized bank deposits, regulated stablecoins, and potentially a retail central bank digital currency (CBDC).
According to Breeden, distributed ledger technology could significantly improve payment systems by lowering transaction costs, increasing settlement speeds, and reducing reliance on intermediaries. She also highlighted the role of smart contracts in enabling automated and customizable financial services.
The deputy governor stressed that the UK aims to build a “multi-money” ecosystem that promotes both innovation and competition across digital payment options while maintaining financial stability.
As part of that strategy, the central bank plans to release draft regulations for systemic stablecoins next month, with final rules expected before the end of the year. Officials are also considering temporary issuance caps to address risks tied to rapid stablecoin adoption during the sector’s early growth phase.
Breeden added that the central bank wants commercial banks to accelerate work on tokenized deposits and ensure these assets can function seamlessly across payment networks between financial institutions.
The speech also highlighted ongoing work tied to the joint tokenization initiative launched by the Bank of England and the Financial Conduct Authority. Their Digital Securities Sandbox, introduced in 2024 and scheduled to operate until 2029, allows firms to test live trading and settlement systems for tokenized securities.
Several major financial institutions are expected to join the sandbox from late 2026, including Euroclear, HSBC, and London Stock Exchange Group.
Breeden also confirmed that tokenized assets held by UK banks would receive the same prudential treatment as traditional assets when the legal rights and associated risks are equivalent.
The Bank of England will additionally continue supporting the UK government’s Digital Gilt initiative, a pilot project exploring tokenized sovereign bonds.
On the topic of emerging technologies, Breeden said the central bank is actively encouraging responsible adoption of artificial intelligence, including the development of agentic payments and AI-driven commerce systems.
The central bank is also expected to publish conclusions from the design phase of its CBDC initiative later this year, offering further insight into how a digital pound could fit into the broader financial ecosystem.
The UK’s push toward tokenized finance mirrors wider international trends. Japan’s ruling Liberal Democratic Party recently reaffirmed its commitment to building a next-generation financial framework centered on blockchain, tokenization, stablecoins, and AI-powered commerce.