The Bank of England (BoE) has announced plans to conduct a series of experiments with distributed ledger technology (DLT) and wholesale central bank digital currencies (wCBDC).
This initiative seeks to keep pace with the evolving payments landscape by evaluating the benefits and risks of developing financial technologies.
Bank of England Explores Wholesale CBDC to Boost Financial Stability
Governor Andrew Bailey stressed the significance of the wholesale CBDC (wCBDC) experiment in a discussion paper published on July 30, saying:
“Confidence in money and payments is fundamental to the Bank’s responsibility for monetary and financial stability. As innovation in this space continues, our role must also evolve to support a robust and dynamic U.K. economy.”
BREAKING: Bank of England to Carry Out CBDC, Digital Ledger Experiments. pic.twitter.com/ljB9CTgeJb
— Unchained (@unchained_know) July 30, 2024
This initiative places the BoE alongside other central banks globally exploring the potential of DLT and wCBDCs.
This global exploration, often conducted through collaborations like the Bank for International Settlements (BIS), seeks to understand the implications of these technologies for monetary systems.
For instance, the BoE actively participates in the BIS’ Project Agora, a project testing the exchange of tokenized assets across multiple currencies on a unified platform involving seven banks.
Project Agorá: central banks and banking sector embark on major project to explore tokenisation of cross-border payments – $WTK
New BIS project brings together central banks and the IIF (Institute of International Finance)
Remember, BIS will be attending the same Digital… pic.twitter.com/NgdI7GCYUG
— WTKme (@grge4t345ht) April 4, 2024
The bank’s discussion paper outlines two primary approaches for central bank money to interact with distributed ledger platforms: synchronization and wholesale CBDCs.
Synchronization involves transferring an asset from one platform to another using the bank’s Real Time Gross Settlement (RTGS) ledger.
Wholesale CBDCs, on the other hand, are digital tokens issued by central banks for use exclusively by financial institutions, which could facilitate interactions with programmable platforms.
BoE’s Planned Use Cases for CBDC Trials And Stakeholder Input
The planned wcBDC trials will explore various use cases. One area of focus is delivery versus payment (DvP) scenarios, which involve settling transactions for primary bond issuances and secondary market trades.
Additionally, the trials will examine digital securities transactions, specifically those where end users make tokenized deposit payments.
Building on the synchronization experiments from Project Meridian FX, the trials will also examine Payment versus Payment (PvP) scenarios and potential wCBDC applications.
Project Meridian’s evolving!
This is a CBDC PoC between BIS & Bank of England released in April 2023. (2 months before Rosalind)
They’re now testing FX settlements with EU’s Eurosystem.
Looking back at Meridian now, I realize many of the $QNT ties to a BoE CBDC were already in… pic.twitter.com/TiQBngyGk1
— Tokenicer✲⥃⬢ (@Tokenicer) June 17, 2024
Interoperability, particularly for cross-border payments, will be another key area of focus. These interoperability tests will be coordinated with global initiatives, including the BIS’s Project Agora.
To ensure the stability of the monetary system, the Bank of England is collaborating with the Treasury and Financial Conduct Authority to maintain the interchangeability of all forms of money, even with the introduction of stablecoins.
Recognizing the importance of collaboration, the BoE is actively seeking stakeholder input on potential use cases for these disruptive technologies.
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