Britain's banks complete tokenized transfers as BoE favors deposits over stablecoins

Britain's biggest banks completed the first interbank transfers of tokenized deposits. Lloyds, NatWest and Barclays ran two mortgage transactions. A separate group of banks tested a simulated marketplace purchase. The trial formed part of UK Finance's Great British Tokenized Deposit project. The Bank of England prefers bank-issued tokens over privately issued stablecoins. Tokenized deposits represent ordinary bank deposits as blockchain tokens. They carry the same legal status as money held in an account. Stablecoins are typically issued by private companies. Stablecoins sit outside the banking system. Bank of England Governor Andrew Bailey previously warned that bank-issued stablecoins could destabilize the financial system. The central bank has kept an issuance cap in place while easing other restrictions this year. HSBC and two other lenders ran a peer-to-peer transaction that simulated an online marketplace sale. Programmable deposits held the buyer's funds until the goods were confirmed received. UK Finance managing director Jana Mackintosh said the setup could reduce fraud risk. Mackintosh said interest from abroad has increased. The project is moving toward the creation of a company and a governing rulebook. Participating lenders plan to issue three digital bonds in the first quarter of 2027. The bonds will be tradable and settled using tokenized deposits. The project is part of a wider UK institutional tokenization effort involving asset managers and banks. The Clearing House announced its own interbank tokenized deposit project in the United States in June. The UK's lead depends on how quickly the rulebook and the 2027 bond issuance materialize.