Bank of England May Use Distributed Ledger Technology To Renew UK Payment System

News and Analysis

Minouche Shafik, Deputy Governor, Markets & Banking Bank Of England, stated the bank considers using the distributed ledger technology in its new infrastructure.

Speaking at the Bank of England on Wednesday, she said that legacy payment and settlement systems have “changed dramatically”. Indeed, when it comes to settlement, the current solutions cannot face the growing demand for speed. For that reason, the bank is going to compile a “blueprint” for next few years, in order to determine what exactly has to be done, and what innovations can be used.

Speaking about current issues in those systems, Shafik said:

“That is why we are today announcing our plan to design a blueprint for a new heart that can support the future demands placed on the UK’s high-value sterling settlement system.”

According to Shafik, new forms of technologies based on distributed ledgers may have inherent challenges, as they enable complete elimination of third parties due to their option of decentralized verification. However, those technologies are capable of rebooting payment securing mechanisms.

“The Bank is undertaking work to understand the implications of new digital or e-monies and new methods of payments and financial intermediation as part of the One Bank Research initiative,” Shafik said.

According to Shafik, he changes in question are to be developed in a couple of years’ time.

“Our aim is that by the end of 2016 we will have agreed a blueprint for high-value sterling settlement in the years ahead, with technological development of that blueprint beginning in 2017.”

According to the bank’s figures, Real Time Gross Settlement (RTGS) operates over £500 billion, which is almost a third of the country’s annual GPD, every day. For that reason the overhaul might be necessary.

“Our challenge will be to navigate a path that redesigns RTGS in such a way that its resilience is further enhanced, while at the same time enabling innovation for the public good.”

The speech follows the landmark report by sir Mark Walport, the UK government’s chief scientific adviser. In the report, he said that blockchain-based systems ‘have the potential to help governments to collect taxes, deliver benefits, issue passports, record land registries, assure the supply chain of goods and generally assure the integrity of government records and services’.

However, Walport noted:

“It is important to stress that these technologies are very early in their development and there are unresolved problems to tackle before these applications can be released, including issues of privacy, performance and scalability.”

Apparently, the Bank of England heeded his call and cautions.

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