Why the debate over digital sovereign money extends far beyond the Bank of England
For more than three centuries, the institutional architecture of money has remained remarkably stable. Governments determine fiscal policy, central banks issue currency, commercial banks create deposits through lending and payment systems move money around the economy. Whilst the instruments have evolved from paper notes to electronic bank balances, the underlying governance model has changed relatively little. Artificial intelligence, self-custody and programmable money are beginning to challenge that model. As autonomous AI agents increasingly negotiate contracts, manage corporate treasuries, purchase services and execute payments without direct human intervention, money itself is evolving from a passive store of value into software. Ownership is no longer necessarily recorded on a bank’s ledger. Increasingly, it can be demonstrated cryptographically through control of private keys, allowing individuals and machines to hold and transfer value directly across digital networks. The Bank for International Settlements (BIS) has highlighted how tokenisation and unified ledgers could fundamentally reshape the future monetary system. This evolution raises a question that extends well beyond technology.
Is the institutional framework developed for twentieth-century banking still the most appropriate model for issuing sovereign money in a programmable economy?
The debate has become particularly relevant in the UK following the Bank of England’s latest policy statement and draft Code of Practice for systemic stablecoins. Yet the issue is far broader than Britain’s regulatory framework. Similar questions are emerging across the US, Europe, Singapore, Hong Kong and many other financial centres as governments determine how digital sovereign money should co-exist with commercial bank deposits, stablecoins and tokenised assets. The discussion is often framed as a choice between central bank digital currencies (CBDCs) and privately issued stablecoins, but that may be too narrow. Questions and concerns also surround institutional responsibility, including:
- should central banks continue to oversee every aspect of digital money?
- should finance ministries play a greater role where sovereign debt provides the backing for programmable currencies?
- or, does the future require an entirely new partnership between fiscal authorities, monetary authorities and private-sector infrastructure providers?
These questions matter because digital money is becoming globally mobile. Stablecoin issuers can choose where to establish themselves and developers can build payment infrastructure almost anywhere. AI agents will increasingly route transactions through the fastest, safest and most economically efficient networks available, irrespective of national borders. Jurisdictions are therefore no longer competing solely on regulation - they are competing to become the preferred home for the infrastructure underpinning the next generation of financial markets.
The Bank of England has already demonstrated a willingness to adapt. Its recent policy statement removed proposed holding limits for individuals and businesses, replacing them with a temporary £40 billion issuance guardrail for each systemic stablecoin. It also increased the proportion of backing assets that may be invested in short-dated UK government securities from 60% to 70%, whilst reducing mandatory non-interest-bearing Bank of England deposits from 40% to 30%. These changes followed extensive industry consultation and reflect a more commercially pragmatic approach than originally proposed. Those revisions represent meaningful progress, yet they also expose a deeper policy debate that extends well beyond reserve composition or issuance thresholds. However, if programmable money ultimately becomes part of national economic infrastructure, which institution is best equipped to design it? Historically, central banks have excelled at maintaining price stability, managing systemic risk and acting as lenders of last resort. Their mandates evolved in an era when money was largely distributed through commercial banks and payment systems operated at human speed. Programmable money introduces different design questions. How should machine-to-machine payments operate? How should autonomous AI agents authenticate transactions? Should digital sovereign money generate yield? How should private-key ownership be recognised within existing legal systems? How should governments supervise financial activity that may occur continuously, globally and without direct human involvement?
Moreover, these questions extend beyond monetary policy - they increasingly touch industrial policy, digital infrastructure, cybersecurity, competition policy and national economic strategy. The International Monetary Fund has argued that tokenised money and programmable finance have the potential to reshape financial markets whilst creating new challenges for regulation, monetary policy and financial stability.That is why governments around the world may need to reconsider not merely how digital money is regulated, but how institutional responsibilities are allocated between central banks, finance ministries and the private sector. The UK provides one of the earliest and most sophisticated examples of this debate and it is unlikely to be the last. Perhaps the more important question is not whether central banks should continue issuing money but whether the institutional architecture created for an analogue banking system remains sufficiently agile for a digital economy increasingly shaped by artificial intelligence, tokenisation and programmable finance. The countries that answer that question first may not simply modernise their payment systems. They could define the monetary infrastructure on which the next generation of global commerce is built.
For decades, central banks have designed monetary systems around a relatively stable set of assumptions. Money moved between people and institutions; commercial banks acted as intermediaries and typically created money via fractional banking practices. Payments operated within business hours, settlement could take days and regulation focused primarily on supervising licensed financial institutions. However, as the Bank of England reminds us: “The Treasury stepped in to issue emergency £1 and 10-shilling “currency notes” in 1914 to stabilise the economy and conserve gold during the war. These emergency notes were later replaced by regular Bank of England notes in 1928, though the Treasury issued another wartime emergency series in 1940.” So, could we see His Majesties Treasury once again issue money directly or via GBP Treasury Bills similar to US Genius US dollar stablecoins? Without doubt, artificial intelligence is beginning to challenge each of those assumptions simultaneously. Increasingly, economic activity is no longer initiated solely by humans - AI agents are already capable of analysing markets, negotiating contracts, optimising supply chains and executing financial transactions within predefined limits. As these systems become more autonomous, they will require access to money that is equally programmable, continuously available and capable of settling transactions in real time.
Meanwhile, the World Economic Forum has identified AI, digital identity and tokenisation as foundational technologies reshaping financial markets. This represents more than another evolution in payments - it changes the economics of money itself. The Bank for International Settlements has argued that future monetary systems must combine trust, settlement finality, interoperability and innovation whilst ensuring that sovereign money remains the anchor of the financial system. Its concept of the ‘unified ledger’ illustrates how tokenised central bank money, commercial bank deposits and tokenised assets could co-exist on common digital infrastructure rather than separate payment rails. Similarly, the International Monetary Fund argues that tokenised money has the potential to reduce settlement risk, improve capital efficiency and automate financial processes through smart contracts. At the same time, it warns that widespread adoption of privately issued digital money could weaken monetary sovereignty if regulatory frameworks fail to evolve alongside technological innovation. These developments suggest that the debate is no longer simply whether central banks should issue digital currencies. The more fundamental question is whether institutions originally created to supervise analogue banking systems remain best placed to design financial infrastructure increasingly driven by software, cryptography and artificial intelligence.
Historically, central banks have succeeded because they perform three essential functions exceptionally well. They preserve confidence in the currency, implement monetary policy and act as lenders of last resort during periods of financial stress; those responsibilities remain fundamental to economic stability. Yet programmable money introduces additional design questions that extend beyond traditional monetary policy:
- how should sovereign digital money interact with autonomous AI agents?
- who should determine the rules embedded within programmable currency?
- should sovereign digital money generate yield?
- how should private-key ownership be recognised within existing legal systems?
- how should governments supervise financial activity that may occur continuously, globally and increasingly without direct human intervention?
Increasingly, these questions overlap with industrial policy, cybersecurity, artificial intelligence, digital identity and national competitiveness. The technological shift is equally significant. Traditional electronic money records ownership through account balances maintained by trusted intermediaries. Blockchain networks instead record ownership cryptographically, allowing individuals, institutions and increasingly autonomous software agents to control assets directly through private keys.
The Bank of England itself has acknowledged that innovations including stablecoins and tokenisation have the potential to reshape payments, settlement and the wider financial system. This distinction matters because AI systems are unlikely to exhibit institutional loyalty. They will optimise according to predefined objectives including cost, settlement speed, liquidity, regulatory certainty and operational resilience. If one jurisdiction offers clearer regulation, more efficient digital money or stronger legal certainty around programmable assets, autonomous systems could increasingly route transactions through those networks regardless of national borders. Competition may therefore shift from banks competing with banks to monetary systems competing with monetary systems. That possibility raises important strategic questions for governments, including:
- should sovereign digital money primarily be viewed as an instrument of monetary policy or as critical national infrastructure?
- should ministries of finance become more involved because sovereign debt increasingly underpins digital currencies and stablecoin reserves?
- should central banks concentrate on monetary stability while specialist agencies oversee programmable payment infrastructure?
- should governments develop integrated institutional models combining monetary expertise with technological capability
However, no global consensus has yet emerged. The US has prioritised the regulation of privately issued dollar stablecoins whilst preserving the international role of the dollar. The European Union has implemented Markets in Crypto-Assets (MiCA) whilst simultaneously progressing work on a digital euro. Singapore has adopted one of the world’s clearest stablecoin regulatory frameworks to encourage responsible innovation, and Hong Kong has introduced licensing regimes designed to attract international issuers. These differing approaches reflect the reality that digital money has become an issue of national competitiveness as much as financial regulation, including:
• European Union’s MiCA,
• European Central Bank’s Digital Euro,
• Monetary Authority of Singapore’s Stablecoin Framework
Therefore, the UK faces a question that extends far beyond Threadneedle Street. How should any advanced economy organise itself when money increasingly behaves similar to software? The answer is unlikely to be found solely in monetary economics. It will require expertise spanning financial regulation, sovereign debt management, artificial intelligence, cybersecurity, payments, digital identity and international competitiveness. Above all, it will require institutional agility because the technologies shaping the next generation of money are evolving considerably faster than the institutions responsible for governing them.
For policymakers, the challenge is therefore not choosing between central banks and finance ministries - it is determining whether the institutional architecture inherited from the twentieth century remains optimal for the programmable economy now emerging. Perhaps the more important question is this: if AI agents become the dominant users of digital money within the next decade, will they optimise around the institutional structures governments have inherited, or around those governments willing to redesign them.
**2 Tokens is a member of DEA digital euro association that does continuous research on the topic - it is not the sandbox in which we participated in all 3 cohorts. DEA is in Frankfurt and Sandbox is a EU Brussels activity.
This article first appeared in Digital Bytes (14th of July, 2026), a weekly newsletter by Jonny Fry of Team Blockchain