The Bank of England (BoE) has announced plans to launch an experimental program that integrates its Real-Time Gross Settlement (RTGS) system with a wholesale central bank digital currency (wCBDC). This initiative, detailed in a recent discussion paper, aims to assess their settlement capabilities and interoperability. Over the next six months, the BoE will execute a series of trials to explore how CBDC settlements compare to non-CBDC central bank money settlements, as previously tested in Project Meridian.
Upcoming Enhancements and Experiments
The BoE has indicated that these experiments will also look into the integration of a synchronization network with the existing RTGS systems. This comes as part of a broader effort to revamp their current RTGS system, known as CHAPS, which experienced a significant malfunction earlier in July. The new version of CHAPS is anticipated to launch within the next few months.
Cautionary Stance on Distributed Ledger Technology
A crucial aspect of these experiments involves the potential use of distributed ledger technology (DLT). The BoE has expressed caution, noting:
“The extent to which programmable platforms could impact our monetary and financial stability objectives will ultimately depend on the likelihood that financial markets adopt these technologies on a large scale. Our current assessment is that this likelihood remains uncertain. Emerging DLT use cases may influence adoption rates, prompting us to remain vigilant against a failure of imagination.”
The BoE has outlined five specific experiments in the discussion paper, each designed to build on the findings from Project Meridian and increase in complexity:
- Delivery-versus-Payment (DvP) Transactions: Three experiments focusing on DvP with securities, where asset delivery is contingent upon fund transfers.
- Payment-versus-Payment (PvP) Transactions: A proposed trial for PvP transactions that involves settlements conditional on the presence of payments in both currencies. This trial will extend Project Meridian’s current work, using sterling pound wCBDC modeled after the Banque de France’s approach.
- Multi-Currency and Asset Experimentation: An ambitious trial aiming to handle assets and multiple currencies on a single platform, possibly within Project Agora.
The discussion paper also raises several design questions and challenges:
- The method of minting wCBDC has been primarily from currency already available in the RTGS, rather than directly minting it “natively.”
- Questions about the control over the platforms where CBDCs are minted—whether by the central bank or a third party—which impacts system resilience.
| Experiment Type | Description | Complexity Level | Project Association |
|---|---|---|---|
| DvP Transactions | Securities settlements tied to fund transfers | Increasing | Project Meridian |
| PvP Transactions | Settlements dependent on dual-currency payments | Moderate | Extension of Project Meridian |
| Multi-Currency and Assets | Handling multiple currencies and assets on one platform | High | Project Agora |
The Bank of England’s proactive approach in testing new technologies through its upcoming experimental series underscores its commitment to enhancing financial infrastructure and exploring the potential of digital currencies. These experiments not only aim to improve the efficiency and reliability of financial transactions but also prepare the groundwork for future financial innovations.
Featured image credit: Images George Rex via Flickr
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