UK banks are testing tokenised sterling deposits as the US debates stablecoins and the role of commercial banks in a digital payments world.
UK Finance has launched the first live pilot of tokenised sterling deposits, collaborating with some of the UK’s biggest banks.
The pilot, announced on September 26, aims to improve payments speed, enhance fraud protection and unlock new use cases for both consumers and businesses. Participating banks include Barclays, HSBC, Lloyds Banking Group, NatWest, Nationwide and Santander, with support from Quant, EY and Linklaters.
“This project is a powerful example of industry collaboration to deliver next-generation payments for the benefit of customers and businesses – and an opportunity for the UK to lead globally in setting standards for tokenised money,” said Jana Mackintosh, Managing Director of UK Finance.
Running until mid-2026, the pilot will test person-to-person payments via online marketplaces, remortgaging processes and digital asset settlement.
Keeping banks relevant in a digital money world
Ryan Hayward, Head of Digital Assets at Barclays, said the UK will likely see multiple forms of digital money and payments emerge soon, with commercial banks playing a central role across all of them. Upgrading bank deposits to a digital form, he added, will help ensure commercial bank money remains central to the economy.
This approach mirrors concerns commercial banks have voiced around stablecoins in the US. Industry groups have cited a US Treasury estimate warning that stablecoins could pull up to $6.6trn in deposits from banks. Since deposits fund loans, banks argue such a shift could raise borrowing costs for households and businesses.
The difference between stablecoins and tokenised deposits is key. Stablecoins, issued by private companies or crypto platforms such as Circle’s USDC or Tether’s USDT, operate largely outside regulated banking.
Tokenised deposits, however, are digital representations of money held in traditional bank accounts, issued by regulated commercial banks such as JPMorgan’s JPM Coin.
Coinbase has pushed back against US bank criticisms, arguing in a recent white paper that there is “no meaningful link” between stablecoin use and deposit flight at community banks.
The company said the debate is about profit, not financial stability, noting that US banks hold $3.3trn in reserves at the Federal Reserve, earning $176bn in interest last year, over half the sector’s pre-tax profits.
Coinbase also highlighted that stablecoins offer faster, cheaper alternatives to card payments, potentially ending a system where lower-income cash users subsidise rewards programmes for wealthier cardholders.
“Stablecoins are a payment innovation, not a threat to lending. What we’re witnessing is classic incumbent resistance: the largest banks are using fear to protect a lucrative, outdated payments monopoly,” the company wrote.
