- The Bank of England is testing whether stablecoins and a potential digital pound can operate together within the same payment system.
- The experiment will use Polygon infrastructure to explore trade finance, digital payments and portable credit profiles for small businesses.
- No real customers or money are involved, and the project does not mean the UK has decided to launch a digital pound.
The Bank of England is moving deeper into its exploration of digital money, testing how privately issued stablecoins and a potential central bank digital currency could work together rather than compete within completely separate financial systems.
The central bank has moved its Digital Pound Lab into Phase 2, where researchers will explore whether public stablecoin infrastructure and central bank money can coexist within a single trade finance payment flow. The experiment comes as central banks around the world wrestle with the same question: how should privately issued digital currencies interact with government-backed money?
For the UK, one potential answer could emerge through trade finance. Small and medium-sized businesses often face lengthy verification procedures and settlement delays when conducting international transactions, leaving working capital locked up while payments make their way through traditional financial infrastructure.
Polygon Joins the Digital Pound Experiment
The Bank of England named Polygon Labs, NOBO Finance and Dun & Bradstreet as participants in the latest phase of its Digital Pound Lab.
Together, the companies will explore how blockchain transactions, business information and open-finance data could be combined to create a portable credit identity for small businesses.
One workstream will focus on developing what the project describes as a “bankable profile” for SMEs. Wallet transaction histories, open-finance data and business intelligence could be combined to create reusable credit assessments, making it easier for lenders and financial institutions to evaluate businesses.
Polygon will provide smart contract infrastructure designed to record verified results and manage how companies provide consent for their information to be used.
Stablecoins and Digital Pounds Could Work Together
Another experiment will examine invoice factoring backed by electronic bills of lading, providing a practical example of how private and central bank digital money could interact.
Under the proposed model, an exporter could receive an advance through stablecoin infrastructure while a UK importer ultimately settles the transaction using digital pounds.
Rather than forcing both parties to use exactly the same type of digital money, the system would test whether stablecoins and CBDCs can move seamlessly across a shared payment process.
Polygon Labs CEO Marc Boiron said interoperability between public and private forms of digital money will be essential if blockchain-based payments are going to support global trade at scale.
Polygon Provides Stablecoin Infrastructure
Polygon will support the stablecoin side of the experiment through its Open Money Stack.
The infrastructure includes fiat-to-stablecoin conversion, cryptocurrency wallets and smart contracts, providing the technical foundation required to test how stablecoins could interact with central bank money during trade transactions.
NOBO Finance, meanwhile, already participated in Phase 1 of the Digital Pound Lab. During that stage, the fintech demonstrated conditional business-to-business escrow payments designed around trade finance workflows.
Bringing these technologies together could eventually help businesses move money faster while reducing the fragmented verification processes and manual checks that still slow international trade.
Small Businesses Could Be Major Beneficiaries
Trade finance remains particularly challenging for smaller companies because establishing creditworthiness and obtaining financing can involve lengthy processes.
Businesses may ship products internationally but wait days or longer before receiving payment. During that period, money that could otherwise be used for payroll, inventory or expansion remains effectively frozen.
If digital payment systems can combine faster settlement with reusable business identities, SMEs could potentially access working capital sooner and secure financing more efficiently.
UK Has Not Decided to Launch a Digital Pound
Despite the expanded experiment, the Bank of England has not committed to issuing a digital pound.
The Digital Pound Lab uses neither real customers nor real money, meaning the current project remains an experimental environment rather than a live CBDC rollout.
Findings from the latest phase will contribute to a joint assessment by the Bank of England and the UK Treasury as officials consider the next steps for the digital pound later this year.
The broader implications extend beyond a potential UK CBDC. If stablecoins and central bank digital currencies can operate together without forcing businesses onto a single network, the model could provide another path toward faster and more interconnected global payments.
