The Bank of England (BoE) stands at the centre of one of the most consequential financial debates of the decade — how to modernise money itself. As digital currencies reshape the global financial landscape, the BoE faces competing visions: one favouring central bank digital currencies (CBDCs) to preserve monetary sovereignty, and another embracing private stablecoins as the natural next step in payment innovation.

The discussion is far from academic. Stablecoins like USDT and USDC are now mainstream in cross-border payments and digital commerce, forcing central banks to decide how or whether, to respond. For the BoE, the challenge is to balance innovation, financial stability, and public trust in a fast-evolving ecosystem.

Stablecoins vs. the Digital Pound: The Debate Deepens

The BoE’s interest in digital money predates the rise of crypto giants. As early as 2014, just before the launch of Tether’s USDT, the Bank began studying the implications of privately issued digital currencies. That early research warned that stablecoin issuers could evolve into “bank-like” entities, wielding power over money supply without adequate oversight, a scenario reminiscent of the UK’s 19th-century free banking era.

By 2016, then-Deputy Governor Ben Broadbent became one of the first central bankers to publicly explore the concept of a digital pound, framing it as a tool to improve payment efficiency and broaden access to central bank money. At the time, stablecoins were a niche product used mostly by crypto traders, and the perceived threat to the monetary system was minimal.

Fast forward to 2025, and the landscape has transformed dramatically. Stablecoins now facilitate billions in global transactions daily, prompting the BoE to revisit its stance. While the Bank’s 2020 discussion paper explored the potential for CBDCs to reduce demand for stablecoins, the question has since evolved from if a digital pound is needed to how it should coexist with private alternatives.

Political resistance remains strong. A 2022 House of Lords report famously argued that a retail CBDC would “create more problems than it solves,” warning of potential risks to financial stability and privacy. Lawmakers suggested a wholesale CBDC might be more beneficial, focusing on interbank efficiency rather than consumer use. Still, the BoE’s exploration continues, a sign that policymakers view digital currency as a strategic, not just technical, issue.

Private Digital Money: Threat or Opportunity?

The tension between innovation and control was laid bare in the minutes of the BoE’s CBDC Advisory Group, released on 7 October 2025. The document revealed growing anxiety among members about delays in developing a digital pound.
“Prolonged inaction could entrench private alternatives and weaken public control over digital money ecosystems,” the minutes warned.

Some participants argued that a digital pound should not merely be a payments upgrade but a response to global competition, a safeguard for monetary sovereignty as stablecoins and foreign CBDCs proliferate.

Governor Andrew Bailey has been vocal in this debate. Long a sceptic of unregulated stablecoins, Bailey has repeatedly emphasised the need for central bank oversight to preserve trust in the financial system. Under his leadership, the BoE initially proposed limits on stablecoin holdings £20,000 per individual and £10 million for businesses, to curb systemic risks.

However, recent reports suggest a softening of tone. The Bank is now said to be considering exemptions for certain firms, recognising stablecoins’ growing utility in trade and payments.

Bailey himself appears to have moderated his position. In a recent article, he acknowledged that it would be “wrong to be against stablecoins as a matter of principle,” noting their potential to drive innovation in payments both domestically and across borders. This pragmatic shift suggests that rather than resisting private digital money, the BoE aims to guide its evolution within a regulated framework.

Tokenised Deposits: The Middle Ground

As the debate intensifies, a third model of digital money is gaining traction: tokenised bank deposits. These instruments, essentially digital versions of commercial bank deposits recorded on blockchain or similar infrastructure offer many of the benefits of stablecoins without removing liquidity from the banking system.

Governor Bailey has championed this approach, describing tokenised deposits as a “continuation of the traditional model” that preserves the core role of banks in credit creation. Unlike stablecoins, which can shift deposits away from banks into private tokens, tokenised deposits remain within the regulated banking sector while offering faster, programmable transactions.

This model is not unique to the UK. Even the Reserve Bank of India (RBI), historically cautious about private digital money, has opened the door to exploring tokenised deposits. For central banks, the concept represents a technological evolution rather than a monetary revolution, one that enhances the existing financial system rather than replacing it.

Towards a Hybrid Future for Digital Money

The BoE appears to be preparing for a diverse digital payments ecosystem, where CBDCs, stablecoins, and tokenised deposits coexist. Much of its current research is focused on interoperability, ensuring these different forms of digital money can function seamlessly across platforms and borders.

In this vision, the digital pound would serve as the foundation of trust and stability, while private stablecoins and bank-issued tokens provide innovation and flexibility. Such a system could strengthen competition and efficiency without undermining financial stability.

As the global race to define the future of money accelerates, the Bank of England’s approach remains one of measured experimentation. By acknowledging the merits and risks of private innovation, the BoE is crafting a uniquely British model for the digital economy: cautious, deliberate, but forward-looking.

Steering Between Innovation and Control

The debate over digital money in the UK encapsulates a broader global dilemma, how to modernise monetary systems without losing public trust or policy control. The Bank of England’s evolving stance reflects the complexity of that challenge.

Whether the future belongs to a digital pound, regulated stablecoins, or tokenised deposits, one thing is clear: the nature of money itself is changing.

And as it has done for centuries, the Bank of England finds itself not merely following financial innovation — but defining its boundaries.