UK banks' first tokenised-deposit transfers amount to two remortgages and one mock purchase

A tokenised deposit and a stablecoin differ in whose liability the pound is. The IMF defines a tokenised deposit as a bank liability transferred on a blockchain or another distributed ledger ^[6]. A stablecoin is a separate liability, issued by a private company and backed by reserve assets ^[7]. A customer who pays with a tokenised deposit therefore still holds a claim on a bank, and the bank keeps the funding ^[6]. A customer who swaps into a stablecoin has moved that pound onto an issuer's books, where it sits against the issuer's reserves ^[7].

The Bank of England has chosen between the two. According to Reuters, it prefers banks issuing tokenised deposits to the use of privately issued stablecoins ^[8], and the BIS has argued that tokenised deposits fit the current two-tier monetary system more closely ^[9]. "We are now working with the banks to design and implement the introduction of so-called tokenised money," Governor Andrew Bailey said in a speech ^[10]. Deputy Governor Sarah Breeden, though, has described a "multi-money" system in which conventional deposits, tokenised deposits and regulated systemic stablecoins coexist and convert at par ^[11]. Cryptopolitan's headline calls the pilot a bet against stablecoins. The body of its report, drawing on Reuters, says the tokens could compete with stablecoins or operate alongside them ^[19].

Two remortgages and one marketplace payment add up to three transactions ^[1]. Four of the project's seven participating banks are named in them ^[2], and the report does not give the value of any of the three. The pilot's scope also includes digital asset settlement ^[18]; the reported transfers covered remortgaging and marketplace payments. The marketplace test came with a commercial argument, that money which pays out only on delivery could reduce fraud ^[20].

Other banking systems are building the same kind of money. "In the last 12 months, other jurisdictions have been speaking to us in earnest about what we've done," Jana Mackintosh, UK Finance's managing director of payments and innovation, told Reuters ^[17]. Of the Clearing House network, Bank of America's Mark Monaco said: "This initiative brings together the innovation of digital finance with the trust, scale, and settlement certainty of established bank payment infrastructure." ^[13] Canada's Big Six banks are developing a Canadian-dollar tokenised-deposit rail ^[14]. On September 10 Canada's OSFI said: "The underlying technology of a financial product or service does not determine its legal nature." ^[15] Cryptopolitan has also reported that SWIFT has 17 banks across six continents lined up for tokenised cross-border payment trials ^[16]. In Britain, the US and Canada, the banks' joint projects are all built on tokenised commercial-bank money [c1, c12, c14]. None of them, as reported, has the banks issuing a stablecoin.

The contest can go three ways. Banks could make the rail the default for sterling remortgage completions and tokenised-asset settlement, leaving stablecoins with the flows that start outside the banking system. Par convertibility of the kind Breeden describes could make the choice of token matter little to users, so that competition moves to whichever rail is cheaper to connect to. Or the pilot could stay at three transactions for years. I think the second is the likeliest outcome in sterling, because the same central bank that prefers bank tokens ^[8] also sketches a system in which regulated stablecoins convert with them at par ^[11]. I would be wrong if the banks publish volumes showing remortgage completions moving on the rail as routine business while no sterling stablecoin reaches systemic status.