Britain's Banks Pick Tokenized Deposits Over Stablecoins. Here's Why the BoE Is Cheering

Britain’s biggest banks completed the first interbank transfers of tokenised deposits, moving money on blockchain rails within the regular banking system rather than through stablecoins.

Lloyds, NatWest and Barclays ran two mortgage transactions, while a separate group of banks tested a simulated marketplace purchase. The trial, part of UK Finance’s Great British Tokenised Deposit project, adds weight to the Bank of England’s (BoE) preference for bank-issued tokens over privately issued stablecoins.

Why Tokenised Deposits, Not Stablecoins

Tokenised deposits are ordinary bank deposits represented as blockchain tokens, carrying the same legal status as money already sitting in an account. Stablecoins, by contrast, are typically issued by private companies and sit outside the banking system.

Tokenized deposits, not stablecoins. The liability stays on the bank's balance sheet, so this is banks modernizing their own rails, not ceding ground to Tether or Circle. The step that matters is the last one: connecting to public networks. Interbank transfers are plumbing.

— John Fleming (@jfleming06880) September 22, 2026

BoE Governor Andrew Bailey has previously warned that bank-issued stablecoins could destabilize the financial system, pushing lenders toward tokenised deposits instead. The central bank has also kept a issuance cap in place even as it eased other restrictions this year.

How the Pilot Worked

UK Finance, said HSBC and two other lenders also ran a peer-to-peer transaction that mimicked an online marketplace sale. Programmable deposits held the buyer’s funds until goods were confirmed received.

Jana Mackintosh, UK Finance’s managing director for Payments and Innovation, said the setup could cut fraud risk. She added that interest from abroad has picked up.

“In the last 12 months, other jurisdictions have been speaking to us in earnest about what we’ve done, trying to understand how they can now catch up.”

— Mackintosh

The project now moves toward setting up a company and a governing rulebook. Participating lenders plan to issue three digital bonds in the first quarter of 2027, tradable and settled using tokenised deposits.

The push also sits inside a broader UK institutional tokenization drive that has drawn in asset managers alongside banks. In the US, The Clearing House, a banking association and payments company, announced its own interbank tokenised deposit project in June.

Whether the UK’s head start holds depends on how quickly that rulebook, and the 2027 bond issuance, actually materialize.