- The initiative is advancing despite Bank of England Governor Andrew Bailey warning that stablecoins could threaten financial stability.
- Tokenized deposits allow banks to provide faster and cheaper transactions while operating within existing regulations.
UK banks are quietly embracing blockchain technology, launching pilots of tokenized deposits that could reshape the way money moves across Britain’s financial system.
The move comes despite Bank of England Governor Andrew Bailey’s repeated warnings that stablecoins could threaten financial stability, signaling that tokenization may become the next major banking innovation.
HSBC, NatWest, and Lloyds have reportedly joined a UK Finance-backed pilot to test tokenized deposits for payments through online marketplaces, according to Reuters. The initiative allows banks to experiment with digital assets within existing regulation, offering customers quicker and cheaper transactions while staying inside the traditional banking framework.
While tokenization gains momentum, Bailey has remained cautious about stablecoins. In July, he noted that he was “not against stablecoins” but questioned their necessity, emphasizing that tokenization provides more value.
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Testing Broader Applications
Stablecoins, which are cryptocurrencies pegged to fiat currencies, have grown popular globally, but Bailey warns they could pull money out of the banking system and destabilize it.
A senior UK banking official acknowledged that tokenized deposits lacked the “brand image of a stablecoin” but still represented a vital technological upgrade.
Some U.S. banks are exploring stablecoins following clearer regulations under President Trump’s GENIUS Act, and European lenders recently announced plans for a euro-denominated stablecoin. Yet in the UK, tokenised deposits remain the focus.
The UK pilot, which also includes Barclays, Nationwide, and Santander, will run until mid-2026. Beyond domestic payments, the trial will examine applications in remortgaging and digital asset settlement, aiming to extend the benefits of tokenization across multiple banking services.
Jana Mackintosh, managing director for payments and innovation at UK Finance, commented for Reuters that the initiative allows banks to innovate while keeping payments within the regulated financial system. “Tokenization allows us to explore new solutions without leaving the safety of existing rules,” she said, underscoring the cautious yet forward-looking approach of British banks.
