Digital assets: what do stablecoins and tokenised deposits mean for building societies and credit unions?

Digital assets have moved a long way from the margins of crypto markets and are now increasingly relevant to the future of UK payments and financial infrastructure.

Two recent developments underline why this is relevant to the future of payments and financial infrastructure.

The Bank of England has published near-final rules for systemic sterling stablecoins, expected to become operational from 2027, while UK Finance has launched its Great British Tokenised Deposit pilot to test how tokenised sterling deposits could work in real transactions.

 

What is a digital asset?

The market has expanded from cryptocurrencies such as Bitcoin and Ethereum into a wider ecosystem that includes stablecoins, central bank digital currencies and tokenised deposits.

Cryptocurrencies remain the best-known digital assets, but many are speculative, volatile and not widely used as money.

Stablecoins are digital tokens designed to maintain a stable value, usually by being backed by assets such as cash or government securities.

Tokenised deposits are different - they are digital representations of existing commercial bank deposits and remain a claim on a regulated deposit-taking institution.

The Bank of England is also working on the back end to embrace digital assets. Its Real-Time Gross Settlement system is developing functionality that could allow central bank money to be synchronised with transactions on external ledgers, helping the cash and asset part of a transaction settle together.

 

Steady as you go with stablecoins

  
Stablecoins are currently used mainly in crypto markets, but policymakers are increasingly focused on their potential use in payments, settlement and cash management.

The market has grown rapidly, with recent market data puts the total value of issued stablecoins at around $310–320 billion.

 

Why does the latest regulation deserve attention?

The Bank of England’s latest proposals are less restrictive for stablecoin issuers, making issuance more commercially viable whilst still mitigating financial stability risks.

The Bank has maintained its position that systemic stablecoin issuers should not pay interest to coin holders, but has moved away from proposed individual and business holding limits.

Instead, each systemic stablecoin will initially be subject to a temporary maximum issuance level of £40 billion.

For building societies and credit unions, the real issue is deposit substitution. If stablecoins became attractive to consumers or businesses, some money could move away from regulated deposit takers.

 

The Great British Tokenised Deposit

 

Tokenised deposits are different from stablecoins. They do not create a new form of money. They represent existing commercial bank deposits in digital form.

A tokenised deposit remains a liability of a regulated deposit-taking institution and retains the protections associated with regulated deposits. The innovation is not the creation of new money, but the way that money can move, be verified and be programmed.

UK Finance’s Great British Tokenised Deposit pilot is testing use cases including person-to-person payments via online marketplaces, remortgaging and digital asset settlement.

For building societies, the remortgaging use case is particularly of interest.

Tokenised deposits could, in theory, support faster settlement, greater transparency and reduced fraud risk by allowing payment to be made only when agreed conditions are met.

 

What does this mean for building societies and credit unions?

The immediate impact is likely to be limited. Stablecoins are still some way from becoming a mainstream savings or payments product for most households, and tokenised deposits remain at pilot stage.

But there is a clear direction of travel. Stablecoins could create longer-term implications for deposits, funding, payments competition and customer relationships.

Tokenised deposits may offer practical opportunities to improve settlement, reduce fraud and make existing processes work better.

 

Conclusion: Digital money should work for mutuals too

Stablecoins and tokenised deposits are not the same thing, and they carry different implications for regulation, risk and consumer protection.

Stablecoins could create new competition for deposits and payments. Tokenised deposits may offer a more familiar route: using digital technology to improve the movement of regulated bank money without removing it from the banking system.

For building societies and credit unions, the priority is understandably not to chase hype. It is to stay close enough to the debate to understand the risks, influence the direction of travel and identify practical use cases that could improve outcomes for members.

The mutual sector has always adapted to changing financial needs while staying anchored in trust, resilience and service to members. Digital money should be no different.

If stablecoins and tokenised deposits become part of the UK’s financial future, they could develop in a way that supports competition, protects consumers and allows mutuals to play a full part in delivering innovation for the people and communities they serve.

For more information on UK Finance’s Great British Tokenised Deposits, the BSA will be hosting a webinar for members on 10 July.  Sign up for the event below.

Great British Tokenised Deposit - Event registration