The Bank of England (BoE) published fresh analysis last week on the potential introduction of a digital pound in its Financial Stability Paper No. 53 The role of holding limits for sterling-denominated systemic stablecoins and a potential digital pound, providing its most detailed assessment yet of how such a currency could impact financial stability.

Financial Stability Paper No. 53 The role of holding limits for sterling-denominated systemic stablecoins and a potential digital pound.

While the Bank did not change its central position on holding limits, the paper introduces new modelling and stress-scenario analysis that sharpen the debate about what a potential Digital Pound design looks like in the UK.

What's new in the latest publication?

The key addition is a much deeper exploration of holding limits under both normal conditions and severe stress. The BoE has modelled scenarios ranging from calm markets to a hypothetical bank-run situation. In these “severe illustrative stress” tests, the Bank estimates that without any caps on digital-pound holdings, banks could face very significant deposit outflows, forcing them to rely heavily on central-bank liquidity. Under a scenario with no limits, that liquidity need could rise to around £250 billion, compared with roughly £112 billion if limits were set at £20,000 per person.

This modelling reinforces what the Bank has signalled for some time now: holding limits are not optional - they are foundational to a safe rollout, at least in the early years of a Digital Pound. And despite extensive industry consultation, the Bank has not shifted from its earlier range of £10,000 to £20,000 per individual.

The publication also introduces new material on business holding limits, which were not covered in earlier design work. While less defined, the suggestion is that firms could face caps in the millions (e.g., £10 million), with possible exemptions for systemically important corporations. These limits - like household caps - are framed as transitional measures.

Recent design and experimentation updates

Beyond the holding-limit modelling, the BoE published a broader update in October 2025 on the project's design phase. The update summarises work over the past year, including publication of design notes (on alias services, offline payments, interoperability models) and the launch of the Digital Pound Lab, an experimental platform from August 2025 to July 2026 for industry to test wallet use-cases, business models and underlying infrastructure.

The Bank emphasises that this is a design phase: the blueprint for a Digital Pound is expected in 2026, and no decision has yet been made on whether to proceed. If the go-ahead is given, a Digital Pound would require new legislation and likely launch in the second half of the decade.

Why the UK's position stands out

The UK's thinking is increasingly distinct from other major economies. In the euro-area, for example, the euro-zone is considering a €3,000 cap for the digital euro - significantly lower than the UK's proposed limit. This is partly because the euro-zone's primary motivation is monetary sovereignty, whereas the UK focuses more on payments innovation, competition and choice.

Meanwhile, the Federal Reserve in the United States has effectively stepped out of the retail Central Bank Digital Currency (CBDC) conversation after an executive order earlier this year paused work on a digital dollar. This leaves the UK and EU as the two major Western economies still actively considering a retail CBDC - but from very different starting points.

Implications for the banking and financial-services sector

For UK banks and financial service providers, the new modelling is especially relevant. The holding-limit work provides a useful calibration of how much deposit flight the BoE is willing to tolerate and how much funding pressure banks might face. Beyond the limits themselves, the design update confirms the BoE's preference for a public-private platform model: private firms (banks or fintechs) would act as wallet providers, while the BoE runs the core ledger.

This raises strategic questions for banks: what new services might emerge? How will banks monetise wallet provision? What happens to deposit funding if a portion of bank deposits migrate to a digital pound? The BoE's modelling shows that deposit migration could raise funding costs for banks, making these strategic questions very tangible.

Where does this leave us?

The BoE's message is clear: a digital pound remains under consideration – not yet confirmed. But this latest publication marks a further step towards a detailed blueprint expected in 2026. More design papers, more experimentation and more engagement are coming in the interim.

For now, the Bank is signalling caution and continuity. Holding limits remain essential. Caps will be transitional. And any launch is still years away.

The debate is maturing - slowly but steadily - and the industry will need to stay closely engaged as the UK shapes what the future of money could look like.