The Treasury announced it would begin monitoring the Bank of England’s overhaul of the UK’s payments system after growing frustrated with the sluggish pace of the plans. The government revealed last week it would introduce a new secondary objective of innovation to track the central bank’s progress on payments and digital currencies.
Government frustration with progress
Payments insiders told City AM the move reflected “government frustration” that the National Payments Vision was “going too slowly.” One senior industry leader said the government is “fed up with payments.” Another source close to the plans said adding an objective to the Bank’s mandate was “quite a statement” and amounted to criticism of Threadneedle Street’s approach so far.
Progress in payments innovation – particularly around stablecoins – has long been the target of industry criticism. Fintech industry body Innovate Finance last year warned the Bank risked “killing” London’s potential to become a global hub for stablecoins with “prescriptive rules.”
While Bank governor Andrew Bailey has since walked back on some of his more hawkish comments on the technology, critics have continued to sound the alarm on the Bank’s speed of movement. One City adviser to fintechs said Britain has been “slow” on payments innovation, arguing that a “diverse mix of stakeholders” with opposing views had held up the plans. Another person close to the discussions said there were “too many people in the room” and that there had not really been a vision.
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Introducing a sterling-denominated systemic stablecoin has been framed as a “key component” of the government’s payments plan. Stablecoins are digital tokens pegged to an official currency. A sterling-denominated token would be pegged to the British pound and be designed to maintain an equal value with real sterling.
The UK has been accused of falling behind internationally after the Genius Act in the US and the EU’s MiCA both enacted tailored statutory regimes that granted legal clarity to digital asset issuers. Last year, payments industry experts told City AM the Treasury and Bank of England needed to “sing from the same hymn sheet” in order to not miss out on a market expected to be over $300 billion.
It is possible the new objective forces the central bank to accelerate its timeline. The government has repeatedly emphasized the need for the UK to remain competitive in the global financial sector, and regulatory delays in one sector can create broader economic inefficiencies. If the Bank fails to align its internal processes with the government’s modernization goals, it could face increased scrutiny or legislative pressure to change its approach.
Clash over technology preferences
The Bank’s deputy governor for financial stability Sarah Breeden – viewed as a possible contender to succeed Andrew Bailey – is tasked with overseeing payments innovation and fintech. However, industry insiders have suggested the policymaker was “not seen as really committed” to stablecoin innovation and instead preferred tokenised deposits.
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Tokenised deposits maintain cash inside the bank so it can lend it out, while stablecoins move money out of the bank into a third-party’s hands. In written evidence to the House of Lords’ Financial Services Regulation Committee in March, banking industry body UK Finance said the case for stablecoins in domestic UK retail and commercial payments was “significantly weaker.”
Breeden appeared to echo a similar view telling the committee in a hearing that “all stablecoins do is payments, so they are not elastic in that way.” She also rejected that the country was “behind” and said the UK would be “welcoming applications from stablecoin issuers by the end of the year.”
One payments insider said the government is “more keen on stablecoins than the Bank is.” They added the new innovation objective appeared like a “further push to nudge the Bank to do what the Treasury wants.”