Bank of England says tokenisation could speed payments

KAREN JOY BACUDO

Finance Editor

The Bank of England has outlined how tokenisation could change the way financial assets are recorded and transferred, saying it could make some transactions faster and easier.

In an explainer, the Bank described tokenisation as the creation of a digital version of an existing financial asset, such as a share, bond or pound. That digital record sits on a secure shared ledger, creating a token that can be tracked and traded online.

The Bank drew a clear distinction between tokenisation and cryptocurrencies. Cryptoassets such as Bitcoin, it said, are privately created tokens that are not backed by assets and can show sharp price swings. Tokenisation, by contrast, is a different way of recording and transferring assets that already exist.

That distinction matters because the Bank presented tokenisation as financial market infrastructure rather than a new speculative asset class. The aim is to modernise payments and asset transfers while maintaining financial stability and protecting money.

How it works

According to the Bank, tokenisation does not create a new underlying asset. Instead, it changes how ownership is recorded, allowing holders to spend, transfer or trade assets through software-based processes that can be automated or linked to conditions.

One example involved online shopping. A payment made with a tokenised asset could be transferred to a retailer only after a buyer confirms that a parcel has been delivered.

The Bank also suggested that tokenised systems could improve cross-border payments. Fewer steps and intermediaries in the payment chain could reduce the cost of international money transfers and shorten settlement times for consumers and businesses.

Policy focus

The central bank said its role is to support innovation while ensuring money remains safe and the financial system stays stable. Its priorities include setting rules for new forms of digital money, improving how money and assets move so digital and existing forms can work alongside each other, and testing ideas on a small scale before broader use.

That approach reflects a cautious stance among central banks as they examine how distributed ledger-based systems could fit within existing payment and settlement frameworks. Rather than endorsing a single model, the Bank pointed to a landscape in which traditional bank deposits, tokenised deposits, regulated stablecoins and potentially a central bank digital currency could coexist.

Retail and wholesale use

The Bank said tokenisation could affect both retail payments and wholesale financial markets. For consumers, the potential change is more choice at checkout, whether online or in-store, along with smoother links between UK retail payments and overseas systems.

For financial institutions and large companies, the Bank pointed to faster wholesale payments, simpler transfer processes and lower operating costs. Tokenisation could also support automated payments, allowing transfers to be triggered when invoices fall due or when other pre-set conditions are met.

Another area highlighted was investment access. Tokenised assets can be split into smaller pieces, the Bank said, which could allow people to invest smaller sums in financial products such as shares or bonds rather than buying a whole unit.

In practice, that could widen access to some investments and lower the cost of holding or transferring them. The Bank also linked this to pension savings, saying that cheaper, simpler market processes could reduce costs for individuals investing in products tied to corporate shares and bonds.

Business implications

For companies, the Bank set out several use cases related to treasury and trade flows. A UK supplier sending goods overseas could be paid upon delivery confirmation, helping address late payments, especially for smaller businesses.

It also described situations in which a business could invest spare cash overnight and retrieve it quickly the following morning. In more extreme cases, large multinational companies could move money immediately between internal accounts in different currencies during an emergency.

These examples underline why central banks and market participants are examining tokenisation beyond consumer payments. The technology is being assessed as a possible way to reduce friction in settlement, cash management and the movement of assets across borders.

The Bank said its vision is for an economy that promotes competition and offers more choice in how people pay, with traditional and tokenised money exchanged seamlessly.