A retail CBDC like the digital pound could play a role in addressing these risks, contributing to ensuring the continued singleness of money in a digital era. However, just like historical banknotes posed liquidity challenges for users far from the issuing bank, stablecoins may face similar issues. Platforms like Uniswap and Coinbase are gradually mitigating these liquidity problems. Increasing regulatory https://www.xcritical.com/ clarity will enable firms to (re)assess their strategic approach to new forms of money and payments in 2025. This includes where to focus efforts, when to build capabilities, and the jurisdiction(s) to focus on. While draft details will emerge in 2025, final rules are not expected until 2026.

Stablecoins and Central Bank Digital Currency: Challenges and Opportunities

Our forthcoming article emphasises the importance of Cryptocurrency wallet balancing private and public monetary systems as we enter an era of financial innovations like stablecoins and central bank digital currencies (CBDCs). We stress the need for effective safeguards to mitigate risks and address potential negative externalities arising from the evolving dynamics between private and public financial systems. To begin to understand some of the potential scenarios, we need to appreciate the variety and applications of CBDCs and stablecoins. There is no single CBDC issuance model, but rather a continuum of approaches being piloted in various countries. For instance, the account-based model being implemented in the Eastern Caribbean involves consumers holding deposit accounts directly with the central bank.

Are Central Bank Digital Currencies same as Stablecoins?

To harness the external expertise necessary to continue the design phase, the Bank will start publishing design notes to present its emerging thinking on specific aspects of a what are stablecoin payments digital pound. For example, in the U.S., one unit of a dollar-pegged stablecoin may be equal to $1. Deloitte LLP is the United Kingdom affiliate of Deloitte NSE LLP, a member firm of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”). DTTL and each of its member firms are legally separate and independent entities. Please see About Deloitte to learn more about our global network of member firms. By end-2025, greater clarity on UK-EU divergence will reveal the long-term costs of offering products in each jurisdiction and enable firms to assess the feasibility of unified risk and compliance systems, policies, and procedures, versus local tailoring.

Stability amid the volatility of crypto: Stablecoins explained

The altcoin ecosystem has become a laboratory for experimenting with various approaches to protocol governance. Some projects implement on-chain voting systems where token holders directly influence protocol changes, while others opt for delegated governance where stakeholders elect representatives. Many projects have developed hybrid systems that combine automated and community-driven decision-making processes, each offering unique insights into decentralized governance. In the privacy token category, Monero (XMR) stands out for its focus on transaction confidentiality.

While the issuance of CBDCs falls under the remit of a sovereign central bank, rules governingthe issuance, security, resiliency, and redemption of stablecoins are still evolving. Stablecoins, on the other hand, could thrive in areas like micropayments, cross-border remittances, and innovative financial applications due to their flexibility and potential for faster development. The future finance landscape is likely to see a coexistence of CBDCs and stablecoins, catering to specific needs. However, the latest introduction of central bank decentralised currencies caused a shift in the finance industry.

Solana boasts one of the fastest transaction speeds and low fees, making it popular for DeFi and NFT platforms. Altcoins come in many forms, each designed with different use cases and goals. These retail payment outcomes require clear and renewed leadership by the UK authorities. The Bank is working closely with HM Treasury, the Financial Conduct Authority and the Payment Systems Regulator to achieve these goals. For an industry that has largely operated under lighter touch regulation, the Consumer Duty’s emphasis on ensuring good customer outcomes represents a substantial cultural and strategic shift. Initial steps towards Consumer Duty compliance include developing a granular understanding of your customer base and defining a target market and distribution strategy.

These coins are sent back and forth on enormous peer-to-peer networks – essentially groups of computers that share data. All three countries are focused on expanding the reach of their retail CBDCs domestically. 134 countries & currency unions, representing 98% of global GDP, are exploring a CBDC. Currently, 66 countries are in the advanced phase of exploration—development, pilot, or launch. Besides closely monitoring any new announce­ments, it would be sensible for treasury teams to make adequate preparations for a world in which the regulatory environment becomes clearer, more permissive, and potentially more prescriptive. The most advanced market application of CBDC to date has been the People’s Bank of China’s (PBoC) multicity pilot of its digital version of RMB, called eCNY.1Formerly Digital Currency Electronic Payment or DC/EP.

As evidenced by a Monday (Jan. 13) report from the Federal Reserve Bank of Atlanta, stablecoins, increasingly heralded as the bridge between traditional finance and the cryptocurrency world, have started to change that dynamic. In contrast, decentralized over-collateralized stablecoins offer stability but face limited demand. Under-collateralized stablecoins, highlighted by the Terra-Luna debacle, appeared capital efficient but ended in significant failures.

• However, as bitcoin dominance is now overwhelming, alternatives will struggle to compete with bitcoin’s network effects and liquidity for payment use cases.
• With the rapid rise in circulation of stablecoins over the past couple of years, central banks have stepped up efforts to explore their own stable digital currencies (Exhibit 2).
• Experimenting with emerging technologies is an important part of our work on the digital pound.
• As a public-private platform, the digital pound would be designed to support innovation and competition.

CBDCs can be categorised into Retail / Wholesale CBDCs and Two-Tier / Single-Tier CBDC payment systems. Central Bank Digital Currencies function as online money and are governed by the central bank of the government. The increasing popularity of this online currency is attributed to its ability to enable quick and secure transactions. Concurrently, the PBoC has been testing cross-border payments with eCNY in Hong Kong, in a joint effort with the Hong Kong Monetary Authority. A bank account will not be a prerequisite for consumer use of eCNY, unless a user desires to replenish a digital wallet. ECNY will carry the same legal status as cash; the PBoC will distribute the digital currency to six authorized state-owned banks, which will circulate it to consumers.

For instance, Sky Protocol issues stablecoins backed by low-volatility and highly liquid assets. This mirrors the fractional reserve system initiated by the Federal Reserve Act of 1913. For example, by 2027, EU firms must accept EU Digital Identity Wallets for SCA. Additionally, EU firms may capitalise on opportunities presented by the Digital Markets Act, including opening access to Near-Field Communication (NFC) technology on mobile devices provided by certain BigTechs, to create new digital wallets. These wallets could offer consumers alternative options for in-store and online payments, competing with BigTechs, and potentially incorporate open banking-enabled Account-to-Account (A2A) payments.

Some financial institutions have developed reserve-backed tokens, known as tokenized deposits. These institutional tokens are implemented on permis­sioned (private) blockchains and are used by financial institutions and their clients for efficient B2B and wholesale transactions. The best known is JPM Coin, offered by Onyx by JPMorgan Chase, whose clients can use it for transactions such as intraday repurchase agreement settlements and to manage internal liquidity. Similarly, institutions such as Signature Bank allow their customers to instantly settle commercial transactions through tokenized deposits with any other member of the Signet ecosystem. CBDCs and stablecoins have the potential to revolutionise the payments industry by offering faster and cheaper transactions, enhanced finance inclusion, and streamlining B2B transactions. They offer near-instantaneous settlements and reduced administrative burdens, allowing businesses to save on costs.

These efforts also contribute to broader benefits for the UK’s fintech sector, particularly in areas like real-time payments and tokenised deposits. The public sector plays an important role in fostering payments innovation by providing digital public infrastructure. Examples like Brazil’s Pix and India’s Unified Payment Interface (UPI) demonstrate how such systems can drive SME growth and economic dynamism.footnote [5] Though the UK’s payment ecosystem is advanced, there is room for further development. By supporting the fintech sector and enabling public-private platforms, the Bank could help drive innovations that benefit the entire economy.

It is already clear, however, that compliance with operational resilience and Consumer Duty rules will be a priority for the Financial Conduct Authority (FCA). Although not yet mandatory, firms with ambitious growth plans may benefit from starting preparations for these regimes in 2025, freeing up resources to implement digital assets-specific rules later. For example, PSD3 proposes that firms must offer payment authentication methods suitable for all users, including those with low digital skills and without smartphones. Firms should use the lead time before PSD3 finalisation to assess the impact on their mobile-only payment strategies and formulate a response. A wave of compliance deadlines, intensifying into 2026–2028, is set to create a more costly and competitive operating environment for the payments and digital assets industries. The regulation aims to make sure stablecoins always maintain a stable value, so people who hold them can get their money back.

Its proof-of-history consensus mechanism, combined with proof-of-stake, enables high transaction throughput. This performance has made Solana particularly attractive for decentralized finance applications, NFT marketplaces, and gaming platforms that require rapid transaction processing. Our experiments across diverse topics have enhanced our practical understanding of design options, enabling us to address specific technical questions in detail. These activities have enriched our knowledge of how a digital pound could function and interact within the broader payments ecosystem. Through our work on the blueprint, we have advanced work on all its key components, including the vision and product roadmap, the scheme and technology framework, and the operational approach needed for a potential digital pound. These experimental efforts will provide critical evidence for future decisions on whether to proceed with a digital pound and play a part in helping the UK to remain at the forefront of payments innovation.

Similarly, many countries’ existing electronic payment systems are relatively inefficient to operate and often not instantaneous or 24/7. With the rapid rise in circulation of stablecoins over the past couple of years, central banks have stepped up efforts to explore their own stable digital currencies (Exhibit 2). With pilot programs ongoing around the world, central bank digital currencies (CBDCs) and private-issue stablecoins are attracting the attention of numerous financial institutions. Banks and other financial-market participants see potential impacts across core business activities including payments, financing, and capital markets. Critical to these applications will be the role of treasurers, who will be responsible for managing the new iterations of money and attendant financial risks. Ultimately the fate of CBDCs and stablecoins may be decided by the significant forces of regulation and adoption.