Bank of England Executive Warns of Financial Risks as Private Settlement Assets Emerge

A senior executive from the Bank of England (BoE) has raised concerns that the failure to modernize central bank money could prompt wholesale settlements to migrate to private settlement assets, posing significant risks to financial stability.

Speaking at Digital Assets Week in London, Sasha Mills, the BoE’s Executive Director for Financial Market Infrastructure, emphasized that the rise of technologies like tokenized assets and programmable ledgers could drive high-value settlements away from central bank-backed money towards private alternatives, including stablecoins. This shift, Mills warned, could undermine the stability of the financial system and weaken trust in state-backed currencies.

“We have a low-risk appetite for a significant shift away from wholesale settlement in central bank money towards private settlement assets (such as from the use of stablecoins for wholesale transactions), because settlement in central bank money is the anchor back to the state,” said Mills.

Navigating Innovation and Risk

Mills highlighted the BoE’s efforts to modernize its infrastructure to accommodate technological innovations. She particularly noted the introduction of the Digital Securities Sandbox, a joint initiative with the Financial Conduct Authority designed to explore the application of new technologies in a controlled, regulated environment.

However, Mills cautioned that programmable ledgers are still in the early stages of their application to financial markets, with potential risks that need to be carefully managed. To address this, the Digital Securities Sandbox will be developed in stages, incorporating increasing standards of resilience as firms meet new benchmarks.

The BoE is also exploring how central bank money could integrate with programmable ledgers, including the potential launch of a wholesale central bank digital currency (wCBDC). This effort includes a series of trials leveraging distributed ledger technology (DLT) to test the feasibility of wCBDCs in the evolving payments landscape.

To maintain its global competitiveness, the BoE is committed to testing different use cases, functionalities, and designs for wCBDCs, while seeking public feedback on its approach, with responses due by the end of October.

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