A Bank of England economist says banks should create digital versions of regular deposits instead of relying on stablecoins. Stablecoins are digital coins designed to hold a steady value, usually backed by dollars or other currencies. The economist argues that tokenized deposits—regular bank money turned into digital tokens—could do the same job better and safer.
Stablecoins have grown popular because they move money quickly on blockchain networks, which are decentralized digital ledgers. However, stablecoins have risks because they are often issued by private companies, not banks or governments. The Bank of England believes central banks and regular banks should issue their own tokenized versions of deposits so people know their money is backed by trusted institutions.
This matters for everyday people and businesses that send money across borders or need fast payments. Right now, if you use a stablecoin, you are trusting a private company to hold the real dollars backing it. If banks offer tokenized deposits instead, you would get the speed of digital money with the safety of your bank protecting your funds. Small businesses and international money transfer services would benefit most from faster, cheaper options.
The Bank of England is exploring this idea as part of its work on digital money systems. Other central banks, including the European Central Bank and U.S. Federal Reserve, are also studying similar approaches. Banks will need to upgrade their technology systems to issue and manage tokenized deposits, which could take two to five years to deploy widely.