Bank of England speech: Supporting innovation and trust in a "multi-money" system

Hogan Lovells commentary: Towards a more flexible policy approach to stablecoins – and privately issued money more generally?

While the speech is not intended to prejudge future Bank/National Payments Vision policy, it does suggest that – in acknowledgement of industry feedback to its initial 2023 proposals - we may see a more flexible approach in some respects from the Bank when it consults on its ‘revised’ policy approach to systemic stablecoins later this year. According to the speech, this will include revised proposals that would allow systemic stablecoins to hold a portion of their backing assets in a subset of high quality liquid assets (HQLA) such as short-dated government securities – reflecting the current predominant stablecoin issuer business model. (That said, the speech does not indicate whether the Bank will update its position on holding limits, which has been a key industry concern.)

There is also recognition that new use cases for stablecoins have been emerging in the time since the Bank published its initial proposals, which focused on their use for retail payments. While Ms Breeden expresses her view that central bank money ‘must remain the settlement asset for systemically important markets’ to avoid the introduction of ‘unnecessary financial stability risks’, she makes the point that central bank money isn’t needed for all settlement now or in the future. This means there will be a significant place in the financial system for privately issued money in the form of both tokenised deposits and stablecoins. The Bank is keen to explore these two alternative wholesale financial market settlement assets in greater detail using its Digital Securities Sandbox. In the shorter term, the emphasis appears to be on the potential for stablecoins, as an existing form of ‘digitally native’ money, to increase the speed and reduce the cost of cross-border transactions and support trading of tokenised securities.

Balancing innovation with preservation of trust in money

The speech delivered a compelling message: innovation is essential to drive economic growth and better outcomes for businesses and consumers, but preserving trust in money is the Bank’s core concern.

The speech focused on three key areas that will enable the Bank to deliver this vision for the UK.

Key area 1: Providing infrastructure for the future

The Deputy Governor outlined several ways in which the Bank is, and will be, providing the necessary payments infrastructure to maintain pace with innovation in trading and settlement:

• Real Time Gross Settlement service: in April 2025, the Bank launched its new Real Time Gross Settlement service (RT2). RT2 has functionality which can enable settlement in central bank money for assets traded and settled in other systems. This includes assets which are traded ‘on-chain’ in programmable and distributed ledgers (DLT).
• Synchronisation lab: the Bank plans to launch its synchronisation lab in 2026. This will allow central bank settlement to be fully integrated with transactions happening on other ledgers.
• Digital pound blueprint: a blueprint for how a digital pound could work is due to be published in 2026. This will set out the key design elements necessary to support the Bank and HM Treasury (HMT) in assessing the policy case for a digital pound.
• Digital Pound Lab: in advance of the publication of the blueprint, the Bank has already launched the Digital Pound Lab in August 2025. The lab enables industry to work with the Bank to test the capabilities of a digital pound, and digital money more broadly.
• DLT innovation challenge: the Bank’s DLT innovation challenge is looking at whether wholesale central bank money can be transacted and settled on an external programmable ledger outside of the control of the central bank.

Key area 2: Designing regulatory frameworks to support innovation

Having the right regulatory frameworks in place is essential to support innovation, and in a fast-moving world the Bank is open to “learning as we go”.

Digital Securities Sandbox

A practical way of learning as innovation happens is the Digital Securities Sandbox (DSS), which is an initiative the Bank launched with the FCA. It’s a regulated live environment, where the regulators can learn from how tokenisation and DLT-based transactions take place in the real world – without putting financial stability at risk.

Tokenisation of money

The speech acknowledged that tokenisation of money, not just securities, is essential to utilise the full benefits of ‘on chain’ settlement. Tokenised money could take three forms: (a) a central bank issued digital currency (or an ‘on chain’ representation of central bank money); (b) a tokenised commercial bank deposit; or (c) a stablecoin.

The UK set out the necessary legislation for a regulatory regime for stablecoins in 2023. At the same time, the Bank and the FCA have been engaging with the industry to develop more detailed rules. The Bank is due to set out revised proposals on the regulatory regime for systemic stablecoins in a consultation later this year. There is some suggestion that these will take into account emerging new use cases for stablecoins (the Bank had initially focused on stablecoins being used for retail payments in its initial proposals).

The Bank also plans to use the DSS to explore how stablecoins and tokenised deposits can be used as the ‘cash leg’ for settling securities issued in the DSS.

Key area 3: Setting an overall strategy to enable innovation

The speech also stressed the need for public authorities (including the Bank) to set clear strategy to guide investment and innovation across the payments landscape.

The Deputy Governor pointed to two recent examples of this:

• The UK’s Payment Vision Delivery Committee (PVDC) announced a new model to deliver the next generation of UK retail payments infrastructure in July 2025. The new model resets responsibilities across the ecosystem, with clear roles for the public authorities and industry participants to renew the UK’s retail payments infrastructure. The PVDC will publish its strategy for retail payments infrastructure and a Payments Forward Plan later in 2025 – so watch this space.
• Also in July 2025, HMT published its Wholesale Financial Digital Markets Strategy. The Bank will play a central role in delivering this strategy across its infrastructure provision and regulatory role.

If you would like to discuss any developments referred to in the Bank’s speech, feel free to get in touch with a member of the team. For further resources, visit our Hogan Lovells Digital Assets and Blockchain Hub.

Authored by Jen Staniforth, Virginia Montgomery, and Christina Wu.