The Bank of England is increasingly focusing on digital money, with Deputy Governor Sarah Breeden highlighting tokenization as a potential way to cut costs, speed up settlements and boost competition.

Speaking at London City Week on Tuesday, Breeden said tokenization – the representation of assets and money on digital ledgers – could improve the efficiency and functionality of payments and financial markets, provided trust and interoperability were maintained.

Breeden stressed that central bank money will remain the backbone, or “anchor,” of the monetary system even as private sector innovations such as tokenized deposits and regulated stablecoins gain popularity.

She said the central bank is working with industry, government and regulators to build a framework that supports innovation without undermining financial stability.

“In addition to traditional bank deposits, people should be able to pay with tokenized bank deposits, regulated stablecoins and potentially a retail central bank digital currency (CBDC),” she said, according to transcription speeches. “Greater competition from a wider range of technologies and business models should lower costs and improve functionality for users.”

BoE CBDC Academic Advisory Group he said in January that “retail CBDC is not strictly required to maintain uniformity, but can play a valuable supporting role, particularly as the transactional use of cash declines.”

Related: Cryptocurrency awareness among adolescent people in the UK reaches 80%: Coinbase study

BoE is focusing on modernizing its settlement infrastructure

The UK is taking additional steps to prepare its financial system for tokenized assets. On Monday, the BoE proposed extending the operating hours of its core settlement infrastructure to almost 24/7 availability.

In the proposal, the central bank said longer operating hours would assist support cross-border payments and securities settlement as tokenization and other digital asset technologies continue to develop.

Excerpt from the BoE’s proposal to extend settlement hours. Source: Bank of England

The proposal follows Breeden’s comments earlier this month that the Bank was reconsidering its approach to sterling-denominated stablecoins, including the issue of relaxing limits on the amount of coins consumers can hold. The review aims to reduce friction among early adopters as policymakers look to strengthen the UK’s position as a competitive digital asset hub.

The Bank of England has softened its stance on stablecoins in recent months as officials engage more closely with industry groups and re-examine earlier proposals that would have imposed tighter reserve and collateral requirements.

Related: The Stablecoin industry opposes the Bank of England’s non-wallet hosting ban