The Bank of England has considered stablecoins for wholesale markets, according to its executive director of financial market infrastructure.
While the bank is clear that central bank money should remain the primary settlement asset in the financial system, it is considering the potential of stablecoins as a means to provide development for wholesale markets.
Stablecoins for wholesale markets
This marks a shift for the bank’s cautious stance, highlighted in a discussion paper from July 2024, which mentioned financial stability risks associated with stablecoins in wholesale transactions. Since then, the bank revisited its position regarding the regulatory framework for stablecoins after receiving feedback from the industry. The feedback mentioned the requirement for backing assets to be held in non-interest-bearing central bank deposits.
The Central Bank of England is aiming to allow a proportion of backing assets to be remunerated by permitting some backing assets to be invested in liquid assets. Later this year, BoE will look for input on the details it requires for stablecoins.
Representatives from the CMS law firm mention that BoE remains biased towards the risk-free settlement asset, central bank funds, in wholesale markets. However, it is exploring other forms of digital settlement assets such as tokenised deposits and stablecoins. The law firms also believe that it is vital that the central bank and regulators strike a balance between protecting financial market integrity and consumers, and the need for development in the UK.
The whole discussion follows BoE’s initiation of the "DLT Innovation Challenge" to help in understanding the implications of integrating distributed ledger technology by allowing companies to show how to securely transact and settle central bank money on an external ledger that is not controlled by BoE. The challenge will proceed for around a month beginning in mid-September, concluding with select participants presenting at a live showcase event on 21 October 2025.
