Bank of England weighs options on digital currency

The Bank of England (BoE) is now facing a pivotal choice on digital currency between supporting tokenised deposits, continuing the central bank’s “Britcoin” — or digital pound — project, or paving the way for stablecoins. The term “Britcoin” was first used by former Prime Minister Rishi Sunak during his tenure as chancellor of the Exchequer, in a post on X.

Appearing at a parliamentary inquiry before the Treasury Committee on July 22, BoE governor Andrew Bailey, said: “The key question is how to bring the benefits of digital technology into our payment systems.”

While the US has chosen the stablecoin path with its GENIUS Act, Bailey highlighted that the technology still need to pass the “financial stability” test in the UK.

He explained: “Stablecoin purports to be money. The key feature of money is that they have assured nominal value, and that’s the test they are going to have to meet. One of the reasons we recognise a bank is by value of money. A pound in my bank account is insured to be the same [as a pound] in your bank account.”

First, tokenised deposits

Bailey also shared that the BoE is working with commercial banks to incorporate the benefits of digital technology into their payment systems, since that is where “most of our money is held”.

In an interview with The Times, Bailey previously expressed a preference for banks to pursue “tokenised deposit solutions” as a way of digitising money, particularly in the context of payments, before adding that the BoE would need to examine stablecoin closely from the perspective of “financial stability and monetary implications”.

When Treasury committee member Harriett Baldwin asked whether stablecoins could make the UK market “less stable”, Bailey replied: “They can do.”

GENIUS model

At the parliamentary inquiry, professor Randall Kroszner, an external member of the Financial Policy Committee (FPC), added that the decision to digitalise currency ultimately depends on the flow of money.

He explained: “If there’s an alternative to bank deposits that appears more attractive to people, that could lead to money flowing out of traditional deposits and into that space. I think the banks are well aware of that risk.”

He added that the GENIUS Act acknowledges the voices of banks but still includes “a fairly robust” reporting and auditing regime, which he expects will play a critical role.

“In the US, one approach has been to require that the backing assets for stablecoins be held in short-term Treasury securities. So you can’t be holding something like Lehman Brothers paper,” he said.

“That’s the model the US has moved toward — requiring high-quality, liquid backing. But of course, that only works if there is careful monitoring and disclosure.”

Britcoin is the last resort

The Treasury Committee’s Baldwin questioned whether this meant the BoE would abandon its “Britcoin” central bank digital currency (CBDC) after spending “millions” on the project, which Bailey denied.

He said the majority of the spending went into “investigating the technology” — such as smart contracts, reducing fraud, lowering costs and improving late payments for small firms — which gave the central bank a better understanding of the overall picture.

However, Bailey noted that if the projects with commercial banks prove successful, he would question “why we would need to introduce a new form of money”.

In the US, the Anti-CBDC Surveillance State Act is proposing a ban on digital currencies issued by Federal Reserve banks. The bill was shoehorned into the annual “must-pass” military spending act (the NDAA) , and has now passed the US House of Representatives.