War and payment innovation: the adoption of paper currency in Britain

David Rule

Digital currencies and stablecoins have increased interest in how new forms of money are adopted. Looking to three episodes from the 1690s to the First World War, this post considers how paper currency replaced coin in Britain, an historical example of adoption of new money. The underlying drivers were not technological changes but wars, leading to actual or feared shortages of coin, and a need to take specie out of internal circulation in order to meet overseas outflows. The public authorities took the initiative and created trust successfully in the new money. This is the first of a series of planned posts by Bank staff on past payment innovations.

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Could financial infrastructure be used to govern AI agents?

Peter Denton

AI systems are becoming increasingly capable of pursuing sophisticated goals without human intervention. As these systems begin to be used to make economic transactions, they raise important questions for central banks, given their role overseeing money, payments, and financial stability. Leading AI researchers have highlighted the importance of retaining governance control over such systems. In response, AI safety researchers have proposed developing infrastructure to govern AI agents. This blog explores how financial infrastructure may emerge as a particularly viable governance tool, offering pragmatic, scalable, and reversible chokepoints for monitoring and controlling increasingly autonomous AI systems.

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The right tools for the job? How effectively can central banks support the transition to net zero?

Utkarsh Somaiya, Caspar Siegert and Benjamin Kingsmore

Climate change creates material economic and financial risks which central banks need to understand to ensure monetary and financial stability. Their interest in climate change has therefore skyrocketed, with almost one third of central bank speeches in 2023 referencing climate change. Central banks are typically responsible for ensuring monetary and financial stability; these macroeconomic conditions are essential to support an orderly transition to net zero. But central banks are often urged to play a more active role and provide targeted support for the transition. Rather than discussing whether this is consistent with their legal mandates, we ask a more pragmatic question: do central banks have the right tools for this job? We argue that some commonly discussed tools may not be very effective.

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Regulatory independence and financial stability

Rhiannon Sowerbutts

The Bank of England Agenda for Research (BEAR) sets the key areas for new research at the Bank over the coming years. This post is an example of issues considered under the Financial System Theme which focuses on the shifting landscape and new risks confronting financial policymakers.

Institutions matter. And in the world of economics, few institutions are as prized as independent central banks. Monetary policy independence, many argue, allows central banks to look through electoral cycles to prioritise long-run price stability. But what about price stability’s younger, less glamorous cousin – financial stability? In a recent paper, we develop a measure of regulatory and supervisory independence (or the lack of it) and examine what are the implications for financial stability. Our findings underline the critical importance of robust, independent regulatory frameworks to safeguard financial systems and show that just as with monetary policy – independence matters for regulation and supervision too.

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Same firms, different footprints: making sense of financed emissions

Lewis Holden

Over 95% of banks’ emissions are ‘financed emissions’. These are indirect emissions from households and businesses who banks lend to or invest in (banks’ asset exposures). Banks disclose these in line with regulations designed to help markets understand their exposure to climate-related risks and their impact on the climate. But emissions disclosures vary drastically between different banks with similar business models. Data quality and availability is cited as the key reason for this. In this post, I demonstrate that variations in financed emissions estimates are explained by the extent of banking activities and asset exposures rather than data quality and availability. For example, whether estimates capture a subset of loan exposures or wider banking activities such as bond underwriting.

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The gathering swarm: emergent AGI and the rise of distributed intelligence

Mohammed Gharbawi

Rapid advances in artificial intelligence (AI) have fuelled a lively debate on the feasibility and proximity of artificial general intelligence (AGI). While some experts dismiss the concept of AGI as highly speculative, viewing it primarily through the lens of science fiction (Hanna and Bender (2025)), others assert that its development is not merely plausible but imminent (Kurzweil (2005); (2024)). For financial institutions and regulators, this dialogue is more than theoretical: AGI has the potential to redefine decision-making, risk management, and market dynamics. However, despite the wide range of views, most discussions of AGI implicitly assume that its emergence will be as a singular, centralised, and identifiable entity, an assumption this paper critically examines and seeks to challenge.

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When mortgage flexibility meets monetary policy tightening: heterogeneous impacts on spending and debt

Philippe Bracke, Matt Everitt, Martina Fazio and Alexandra Varadi

The Bank of England Agenda for Research (BEAR) sets the key areas for new research at the Bank over the coming years. This post is an example of issues considered under the Macroeconomic Environment Theme which focuses on the changing inflation dynamics and unfolding structural change faced by monetary policy makers.

How do mortgagors adjust spending, savings and debt during monetary tightening? In a recent paper, we explore this question using a novel data set on household transactions and mortgage records. About 30% of households used mortgage flexibility when facing higher borrowing costs since late 2021, as their fixed-rate contracts ended. Some extended repayment periods to lower monthly payments, while others increased borrowing by extracting housing equity – leveraging nominal price gains since the pandemic – to sustain spending and reduce unsecured debt. Those unable or unwilling to use mortgage flexibility, cut spending significantly. We thus document the dual role of mortgage flexibility at refinancing: it helps smooth consumption aiding financial resilience; but it may also dampen monetary policy transmission for some households.

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Muddled measurements on clarity

Charlie Warburton and James Brookes

Economists have repeatedly shown that readability of central banking communication matters. But they typically measure readability in a crude way – using the simplistic but influential Flesch-Kincaid metric. The Flesch-Kincaid Grade Level is based on word and sentence length and is commonly interpreted as the number of years of education required to understand a text. However, recent advances in computational linguistics toolkits empower us to consider finer-grained markers of language comprehension missed by Flesch-Kincaid. Here, we revisit Jansen (2011) which found that Fed Chair testimonies with lower Flesch-Kincaid Grade Level scores – indicating higher readability – were associated with lower market volatility. Our results show that compared to more sophisticated linguistic metrics, Flesch-Kincaid is a relatively poorer indicator of readability.

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What happens to inflation when we put a price on carbon?

Hannah Copeland, Lennart Brandt, Natalie Burr and Boromeus Wanengkirtyo

Emissions Trading Schemes (ETS) are an increasingly popular market-based policy to impose a price on carbon emissions (previously costless to the emitter) (World Bank Group (2025), DESNZ (2025)). With carbon prices expected to increase steadily, and sectoral coverage broadening, these schemes have gained the attention of monetary policy makers (Breeden (2025), Mann (2023)). But what are the implications for inflation? By constructing a new tool (a high-frequency identified ‘instrument’) to measure the impact of supply shocks in the UK carbon market, we document that a tighter carbon pricing regime temporarily increases energy prices and inflation, and decreases output. We find that this shock transmits through multiple energy-related commodity prices, including oil and gas, compounding cost-push pressures arising from the energy sector.

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Once upon a time in the future: strategic foresight in central banks

Julia Giese and Jacqueline Koay

We live in an era of rapid change, complexity and uncertainty. Over recent years, severe global shocks have been frequent, with profound implications for our economy and financial system. Yet such shocks are impossible to forecast with any precision as they are not extrapolations of past relationships. Our economy and financial system are subject to longer-running trends such as technological advances, demographics, geopolitical shifts and climate change which can be blown off course or altered in unexpected ways. Where forecasts are bound to fail, strategic foresight tools can help as they are a means for practitioners to understand the dynamics of change (and how this could impact the economy and financial stability) by imagining different futures and telling stories around how trends might interact to give rise to unforeseen shocks.

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