Key takeaways:
- The Bank of England will conduct experiments with CBDC and digital ledger technology.
- BOE also aims to make stablecoins interchangeable with the pound.
The Bank of England (BoE) is reaching out to the private sector to gather insights on its innovative roadmap for money and payments. In a recently published Discussion Paper, the central bank highlights its response to rapid advancements in the payments landscape and their implications for monetary and financial stability.
In the Discussion Paper dated July 30, the BoE outlines its plan to investigate the potential of a wholesale central bank digital currency (wCBDC). This digital currency would cover large transactions, such as government bonds and securities trades, marking a significant step toward modernizing the financial infrastructure.
“As innovation in this space continues, our role must also evolve to support a robust and dynamic UK economy,” stated Bank Governor Andrew Bailey.
The BoE has been working on renewing its wholesale payments network, known as the real-time gross settlement (RTGS) system. Last year, the system was updated to adopt the new messaging standard ISO 20022, enhancing the efficiency and interoperability of financial transactions.
The central bank has identified several guiding principles for its approach to innovation:
1. Economic Analysis and Policy Outcomes: Ensuring that innovations align with monetary and financial stability objectives.
2. Global Financial System Developments: Staying attuned to international advancements and trends in the financial landscape.
3. Agility and Responsiveness: Maintaining flexibility to adapt to the inherently uncertain nature of technological progress.
The BoE plans to conduct a series of experiments with distributed ledger technology (DLT) and wCBDCs. These experiments aim to keep the bank abreast of changes in the payments ecosystem and assess the opportunities and risks associated with financial technology advancements. The rise of cryptocurrencies and the underlying DLT has prompted central banks globally to explore their interactions with these technologies.
The BoE is also involved in the Bank for International Settlements’ (BIS) Project Agora. This project focuses on testing the exchange of tokenized commercial bank deposits and central bank money in multiple currencies on a single platform among seven banks.
The discussion extends to the use of tokenized money and programmable payments. The BoE states, “The extent to which programmable platforms could impact on our monetary and financial stability objectives will ultimately depend on the likelihood that financial markets take up these technologies at scale.”
Although the bank’s current assessment indicates uncertainty regarding widespread adoption, it emphasizes the importance of preparation to ensure continued fulfillment of its objectives.
