A leading Bank of England (Boe) CEO has pointed to how tokenization and Stablecoins can help provide the basis for the next financial system, with appropriate regulation and support on site.
Sasha Mills, CEO of financial market infrastructure at BOE, gave a speech that discussed building a “mixed ecosystem” digital financial system with tokenization, Stablecoins and distributed book together with the existing system.
Mills spoke in City Week 2025 in London on July 2 and praised the benefits given to the financial markets through tokenization and Stablecoins, while describing Boe’s view of digitization wider.
Boe wants new structures
Mills noted that how information flows around the financial system has largely remained unchanged in modern times – a “analog market” in a digital world. For example, many of the processes that undermine the financial system are still centered around a “end of the day” which is “increasingly contrary to a global financial system around the clock.”
Mills suggested that the solution is “To build a digital financial system that realizes Benefits of new technologySamexist with existing technology and supports innovation. “
One such solution is to have a “digitally compatible or digitally native means of payment with the minimum credit, market and liquidity risk.” In this regard, she pointed to Boe as the first central bank to board a distributed main book technology (DLT) -based private payment operator in Nigal.
Mills also highlighted the UK’s Digital Securities Sandbox (DSS)—To faced to facilitate the use of development technology as DLT in issuing, trade and decommissioning of securities – as an example of Boe exploring and enabling new market structures.
A remarkable use case to get out of DSS so far is the British government Digital valid Pilot (digit)which will issue government debt on a distributed general ledger.
According to Mills, examples such as this have led to a top in “new participants and judges who enter the (DSS) regime.”
She went on to say that Boe sees the digitization of wholesale financial markets “as a way to improve their function and efficiency by using new and innovative methods for technology and using data.”
Such an innovative strategy is tokenization.
Tokenization is the future
Tokenization is the digital representation of financial assets using DLT, the underlying technology behind blockchain.
In its speech, Mills emphasized how some companies investigate tokenization to make moving assets around the financial system more easily by removing operational and technical obstacles.
“Tokenization of assets and smart contracts on programmable and shared books can deepen existing markets, unlock new and change how asset classes, capital and balance sheet can be mobilized within the financial system,” Mills said. “Britain’s authorities must legitimize the usefulness of tokenized assets and payments to safely support growth in the financial system.”
She gave the example of “Intraday Repor” – transactions that are opened and closed the same day, with the participants that specify the opening and closing times – as an area where tokenization can provide value.
Another is tokenized deposits – digital representations of commercial bank money registered on programmable books, which appear as a promising innovation within the regulated banking system.
According to Mills, the banks are considering toxic deposits to explore real -time, at the chain residence while preserving protection and credit -creating capacity for traditional deposits.
As David Bailey, CEO of Prudential Policy at Boe, noted In June, the central bank is actively investigating how tokenized deposits can be integrated with initiatives such as DSS and National Payment To enable “both sitting and new companies to compete at the same time as customers can use different forms of digital money with trust.”
In his speech, Mills also pointed out that asset tokenization can enable “rationalization of processes and systems” by normalizing how asset classes are represented and allow smaller parts of these assets to be mobilized, which suggests the benefits of fractional ownership provided by blockchain -Tokenization.
Another blockchain-related substance that received significant air time in Mill’s speech was Stablecoins.
Supportive Stablecoin’s regulation
Mills noted that Boe will consult in the UK’s systemic Stablecoin regimen, and follows up a Discussion documents at Systemic Retail Stablecoins published in November 2023.
Stablecoins remain unregulated in the United Kingdom, but the country’s top financing sector guard dog, Financial Conduct Authority (FCA), Recently, efforts increased to produce a frame of the asset type. This proposed framework, even if it is not completed, would place so -called “Systemic Stablecoins“–Stablecoins are considered large enough to be of potential risk to the broader financial system – under BOE’s purpose.
When it comes to Boe’s regime, Mills said “It is important to emphasize that when designing the bank’s proposed requirements, we tried to be forward -looking and consider which standards would have to fulfill.”
In one of a U-turn, a standard that Stablecoins apparently no longer needs to fulfill that all support assets must be invested in unlimited central bank deposits that the banks are obliged to keep on the central bank, but do not earn any interest.
According to Mills, despite the fact that Boe initially proposed this requirement, it was found in consultation that it “would not result in a viable business model.”
Instead, she said, Boe is now “focused on allowing some of the support resources to be replaced” by allowing some of support assets to be invested in the “High Quality Liquid Assets (HQLA).”
According to Mills, Boe believes that this will support innovation in the UK while maintaining confidence in money and enables a more even transition from FCA to the central bank’s requirements within the future UK’s Stablecoin regime.
In addition, she confirmed that BOE was considering introducing holdings for systemic Stablecoins, probably about SEK 10,000-20,000 (about $ 13,000-27,000) for individuals and £ 10 million (about $ 13 million) for companies.
These limits would be the transition and let the financial system adapt to new forms of digital money. However, Mills said that Boe was still involved in the industry and listened to feedback, so these proposals have not been completed.
In another uncharacteristic embrace of Stablecoins, Mills said that Boe was “open -minded” for Stablecoins to provide innovation which can also be useful for the wholesale markets.
“The bank has always been clear that central bank money should be the primary resolution in the financial system, and we innovate the central bank’s money to ensure that this remains the case,” she said. But she went on to say that Boe “considered the role that Stablecoins could play to support innovation in Digital Securities Sandbox.”
Mills said that the central bank will publish additional information about this later in the year.
Warnings from the past
Among her praise and optimism for all things digitization, Mills also warned that although the foundations provided by Boe’s current efforts are solid, especially in terms of tokenization and Stablecoins, much must still be done to graduate to a financial system that can deliver faster and cheaper settlement.
She also pointed to the hard -learned learned lessons from the past that has taught how a financial system is just as good as people’s confidence in it.
“Money requires confidence in supporting economic activity and growth in good times and bad. A lack of money speaks to economic instability, which we have seen countless times in history,” Mills said. “Participants in real economics and financial transactions require security that the settlement is final … without that we can see cascade errors in utilized markets.”
Thus all new systems or ecosystems built on Innovative technology Should have the protection of these principles in their core, if it is to maintain financial stability, “follow the same risk, the same regulatory results and give room to innovators to compete to deliver solutions. That is what we are here to ensure,” said Mills.
Boe’s Managing Director of Finance Market infrastructure, which concluded her comments to the City Week event, said that the central bank wants to continue working with the industry to “start building on the grounds we and others have put in place.”
She added that “it’s time to move away from talking about potential and one -off demonstrations of technology and for all of us to start working together to deliver a new generation of the financial system that fits London’s place like the heart of the global financial system.”
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