Bank of England to test stablecoin, digital currency use in cross-border finance

The Bank of England (BOE) is testing how stablecoins and a digital pound can work together as central banks globally grapple with how the two payment mechanisms interact to modernize cross-border finance.

By moving its digital pound exploration into Phase 2, the BOE is testing whether public stablecoin infrastructure and central bank money can coexist in a single payment flow for trade finance, it said Wednesday. The BOE has been experimenting with a central bank digital currency (CBDC) and the distributed-ledger technology that forms the backbone of the blockchain since 2024.

Central banks worldwide are exploring how to regulate private stablecoins, which are crypto tokens whose value is pegged to a fiat currency, alongside potential state-issued digital versions of their currencies, or CBDCs. At the heart of the experiment is the improvement of trade finance, which would particularly benefit small businesses, according to Otto Jacobsson, U.K. chapter lead at the Digital Assets Association. Trade-finance delays make it harder for those firms to prove creditworthiness and access funding, he said.

"If these processes can become faster and more efficient, U.K. businesses could unlock working capital sooner and make it easier to finance international trade," Jacobsson said in an interview over LinkedIn.

The BOE named NOBO Finance, Dun & Bradstreet, a global provider of business decisioning data, analytics, and credit-rating services, and Polygon Labs, a software and blockchain company, as participants in its Digital Pound Lab.

The project will be the first time the Digital Pound Lab tests how public stablecoins and central-bank money work in a single payment flow alongside a portable credit identity for small businesses. The lab uses no real customers or money and does not signal any decision to issue a digital pound.

NOBO, a U.K.-based fintech building digital trade finance infrastructure that helps small and medium-sized enterprises (SMEs) become visible, verifiable, and bankable, was already involved in Phase 1. During the first phase, NOBO helped demonstrate conditional business-to-business escrow payments relevant to trade finance workflows.

A first workstream will build an SME "bankable profile." NOBO, Dun & Bradstreet and Polygon plan to combine wallet transaction data, open-finance information and business intelligence to create a reusable credit assessment. Polygon will provide smart contracts intended to record the verified outcome and manage consent.

The group will also experiment with invoice factoring backed by electronic bills of lading. An exporter would receive an advance through stablecoin technology, while a U.K. importer makes final settlement in digital pounds.

"For digital money to actually move the world's trade, its different forms have to work together --- public and private, central bank money and stablecoins," Marc Boiron, CEO of Polygon Labs, said in the statement. "This experiment tests exactly that."

Polygon said it will provide the stablecoin settlement infrastructure through its Open Money Stack, including fiat-to-stablecoin conversion, wallets and smart contracts.

The group said the findings will feed into the BOE and the Treasury's joint assessment of the digital pound ahead of its next steps later this year. The broader question is whether different forms of digital money can interoperate, instead of forcing companies and customers onto a single payment infrastructure.

"Cross-border SME trade finance is still slowed by fragmented verification, manual checks, and settlement that can take days," the group said in a statement. "For small businesses, the gap between shipping goods and receiving payment is frozen capital."