Bank Of England Considers Distributed Ledger Technology For UK Payments System Overhaul

Blockchain and distributed ledger technologies are the latest hot topics in the financial industry. They continue to garner interest across multiple industries. The UK has also shown its interest in the technology: there have been reports that suggested that the government might be the next in line to start using the technology for record-keeping purposes. Also, in November last year, the Bank of England invited applications for blockchain-focused paid internship programme.

On Wednesday, Minouche Shafik, Deputy Governor, Markets & Banking Bank Of England, in a speech on “A New Heart For A Changing Payments System” given at the Bank of England, spoke on the distributed ledger technology and developing a blueprint for a new high value payments system.

She said that the payments and settlement operations of the Bank have dramatically changed over the years, making it important that the Bank considers how real-time gross settlement system (RTGS) will need to evolve to meet and shape payments trends in the coming decades.

“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”, Shafik said.

She said that the emergence of various forms of Distributed Ledger Technology (DLT) poses much more profound challenges because it enables decentralised verification of payments, thereby eliminating the need to rely on a third party. It has the potential to reshape the mechanisms for making secured payments. Strong cryptographic and verification algorithms allow everyone in a DLT network to have a copy of the ledger, and give distributed authority for managing and updating that ledger.

“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 added.

She pointed out that the blueprint will seek to answer four overarching questions:

• First, what should the Bank’s policy objectives be in the delivery of sterling settlement in central bank money? 
• Second, what functions should the UK High Value Payments System have? 
• Third, who should be able to access it, and how? 
• Fourth, what should the role of the Bank of England be in the delivery of that service?

“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”, Shafik said.

Speaking of financial stability she emphasized the importance of “resilience” acknowledging that a persistent disruption to people’s ability to make and receive payments would cause great damage to the UK economy.

She concluded saying, “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.”