The Bank of England is looking into the policy and technical issues posed by Central Bank Digital Currencies (CBDC) and developing blockchain proof-of-concepts, Bank of England Governor Mark Carney said.

Speaking at the Deutsche Bundesbank G20 conference on “Digitising finance, financial inclusion and financial literacy”, Wiesbaden, Carney discussed the promise of fintech, distributed ledger technology and much more.

“FinTech’s true promise springs from its potential to unbundle banking into its core functions of: settling payments, performing maturity transformation, sharing risk and allocating capital. This possibility is being driven by new entrants – payment service providers, aggregators and robo advisors, peer-to-peer lenders, and innovative trading platforms”, Carney said.

In wholesale banking and markets, he said that innovative technologies have the potential to transform wholesale payment, clearing and settlement infrastructure.

“Emerging technologies, such as distributed ledger, could in future offer significant gains in the accuracy, efficiency and security of processes across payments, clearing and settlement as well as better regulatory compliance. In the process, tens of billions of dollars of capital may be saved and resilience could be significantly improved”, Carney added.

He further said that the blockchain or distributed ledger technology (DLT) that is being trialled for use within, or as a substitute to, existing wholesale payment, clearing and settlement infrastructure, will need to meet the highest standards of resilience, reliability, privacy and scalability.

Carney pointed out that for realizing FinTech’s promise, there’s a need to refresh supervisory approaches. This could be done through setting up of regulatory sandboxes; adapting existing authorisation processes so that they do not unnecessarily block new business models and approaches; expanding access to central bank money to non-bank payments service providers (“PSPs”); and develop proof of concepts with emerging technologies. To that end, he added:

“A number of authorities, including the Bank of England with its FinTech accelerator, are developing Proofs of Concepts with new enabling technologies from machine learning to distributed ledgers. And, to explore what could be genuinely new under the sun, we are researching the policy and technical issues posed by Central Bank Digital Currencies. On some levels this is appealing; people would have direct access to the ultimate risk-free asset. In the extreme, however, it could fundamentally reshape banking including by sharply increasing liquidity risk for traditional banks.”

The BoE embarked on a multi-year research programme in September 2016 to explore the implications of CBDC. Victoria Cleland, Chief Cashier at BoE, had said that the bank will be looking into a wide range of questions posed by CBDCs including its feasibility and potential benefits for the economy and the financial sector.