The Bank of England is planning a series of experiments with distributed ledger technology (DLT) and wholesale central bank digital currencies (wCBDC) to keep up with changes in the payments landscape and assess the opportunities and risks of developments in financial technology. Central banks around the world are exploring how to interact with cryptocurrencies and DLT, either on their own or through organizations like the Bank for International Settlements. The Bank of England is part of the BIS’ Project Agora, which is looking at testing exchanging tokenized commercial bank deposits and central bank money in multiple currencies on a single platform among seven banks.
Governor Andrew Bailey emphasized the importance of maintaining confidence in money and payments for monetary and financial stability as innovation in the financial technology space continues to evolve. One way that central bank money can interact with distributed ledger platforms is through synchronization, where an asset is transferred from one platform to another with the cash leg of the transaction on the bank’s Real Time Gross Settlement ledger. Wholesale CBDCs, digital tokens issued by central banks exclusively for institutions, could facilitate interactions with programmable platforms.
The Bank of England’s program of experiments will focus on policy outcomes sought from innovations in wholesale central bank money, covering both wCBDC and synchronization. The bank will collaborate with the Treasury, Payments Systems Regulator, and the Financial Conduct Authority to ensure the singleness of money is maintained even when stablecoins are involved. This means ensuring all forms of money, including cash and bank deposits, are interchangeable with each other.
The bank’s experiments will also involve ensuring that the singleness of money is maintained between stablecoins and tokenized deposits represented on programmable platforms. By conducting these experiments, the Bank of England aims to stay ahead of technological advancements in the financial sector and develop strategies to support a robust and dynamic UK economy. The rise of cryptocurrencies and DLT has prompted central banks to explore ways to adapt to these developments and maintain stability in the monetary systems.
