First Digital ID: Is the British Pound Transitioning to Digital? Understanding Tokenized Sterling
Today, British Prime Minister Keir Starmer sparked outrage as he unveiled plans for a UK digital ID, but are leading banks considering digitizing the British pound (GBP) as well?
The largest banks in Britain have initiated live trials of “tokenized” sterling, which are digital counterparts of bank deposits meant to enable quicker and more regulated payment processes.
(Source – GBP USD, TradingView)
Six major banks, including Barclays, HSBC, Lloyds Banking Group, NatWest, Nationwide, and Santander, are involved in the pilot, which is being coordinated by UK Finance. This initiative commenced on September 26 and will continue until mid-2026.
The trials concentrate on three scenarios: marketplace transactions, remortgaging, and settling digital assets.
UK Finance states that the aim is to reduce fraud, accelerate settlement processes, and provide users with greater control over their money movements.
This represents a significant advancement in the UK’s endeavor towards programmable currency. Rather than introducing a new currency, tokenized deposits function as digital representations of existing funds in banks.
They are projected to be integral to the country’s overarching digital finance strategy, complementing the Bank of England’s initiatives on digital money and securities.
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Why Does the Bank of England Favor Tokenized Deposits Over Stablecoins?
The UK’s trial of tokenized sterling deposits is gaining traction, supported by leading banks and significant industry partners.
UK Finance refers to these tokens as digital counterparts of commercial bank money.
They offer the same safeguards as traditional deposits but with enhanced programmability, enabling automated payments tailored to specific requirements.
The pilot is backed by Quant for technology solutions, EY for advisory services, and Linklaters for legal assistance.
“This initiative exemplifies strong strategic alliance within the industry to create next-generation payment solutions,” remarked Jana Mackintosh, UK Finance’s managing director for payments and innovation.
The Bank of England has encouraged banks to adopt this model, contending that tokenized deposits are more secure than privately issued stablecoins due to their retention of funds within the regulated banking sector.
As reported by Reuters, the pilot will broaden its scope from marketplace transactions to include remortgaging and digital asset settlements. HSBC indicated that client interest is strongest in cross-border payments, where tokenized deposits could reduce costs and shorten settlement times.
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How Does the UK Regulated Liability Protocol (RLN) Shape Tokenized Bank Money?
Tokenized sterling deposits do not constitute central bank cryptocurrency (CBDC) or private stablecoins. They represent commercial bank liabilities recorded on distributed ledgers, intended to integrate with current payment frameworks and future tokenized markets.
This initiative builds upon the U.K.’s Regulated Liability Protocol (RLN) trials and aligns with the Bank of England’s ongoing projects on cryptocurrency and the Digital Securities Sandbox.
The pilot follows months of policy developments and new funding for supportive infrastructure.
Earlier this week, distributed ledger settlement firm Fnality, which runs the Sterling Fnality Payment System under BoE supervision, secured approximately $136 million from banks and market players to enhance wholesale, tokenized settlement pathways in the UK and internationally.
Investors comprise Bank of America, Citi, and WisdomTree.
Participating banks characterize tokenized deposits as enhancements to existing monetary structures rather than replacements. “The transition of bank deposits into a digital format will help maintain the relevance of commercial bank money within the economy,” stated Ryan Hayward, head of digital assets at Barclays.
HSBC has described tokenized deposits as “a key development in the realm of crypto asset.”
Regulatory bodies have indicated that stablecoin regulations will not be finalized until late 2026. Nevertheless, they have encouraged banks to assess tokenized deposits within existing regulations.
This strategy, along with live trials, suggests that the UK is positioning tokenized bank money as a bridge toward a more programmable financial ecosystem, which could coexist alongside any prospective digital pound.
The pilot is scheduled to continue until mid-2026. Success indicators will include whether programmable deposits can mitigate fraud in online marketplaces, expedite mortgage refinancing, and facilitate immediate settlement for tokenized assets.
The markets will also be attentive to further announcements from the BoE regarding the digital pound and from the FCA concerning the final guidelines on stablecoins.
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The article First Digital ID: Is the British Pound Going Digital? Tokenized Sterling Explained first appeared on 99Bitcoins.
