The Bank of England to Lead New Experiments with CBDCs

The Bank of England (BoE) has unveiled a new Discussion Paper detailing its approach to advancing the UK’s payment systems amidst rapid technological changes. The paper, released on 30 July 2024, outlines the central bank’s strategy for integrating innovative technologies while ensuring financial stability and promoting economic growth.

Deputy Governor Sarah Breeden has written in the@FT as we publish a Discussion Paper on the@bankofengland's approach to innovation in money and payments.

The UK must continue to innovate in digital payments https://t.co/AFGBO5BIch
— Bank of England Press Office (@BoE_PressOffice) July 30, 2024

Key Areas of Focus in the Discussion Paper

The Discussion Paper highlights several critical areas for development:

Preservation of Central Bank Money: One major concern is the risk associated with the financial market’s shift away from using central bank money. The BoE aims to maintain central bank money as a cornerstone of confidence within the financial system. This involves safeguarding its role as a reliable anchor despite the rise of new technologies.
Technological Innovations: The BoE plans to incorporate advanced technologies into its operations, particularly through enhancements to its Real-Time Gross Settlement (RTGS) system and experimentation with wholesale central bank digital currencies (wCBDCs). These initiatives are intended to explore the benefits and challenges of integrating new digital solutions into existing frameworks.
Retail Payment Objectives: A top priority is Ensuring households and businesses can make payments quickly, easily, and securely. The BoE seeks to provide leadership in retail payments, collaborating closely with HM Treasury, the Financial Conduct Authority (FCA), and the Payment Systems Regulator (PSR) to drive innovation and ensure seamless payment experiences for all users.

Upcoming Experiments and Technological Advancements

Building on these objectives, the BoE is set to undertake a series of experiments focused on digital currencies and distributed ledger technology (DLT). These experiments will assess how wCBDCs and DLT can enhance the functionality and efficiency of the UK’s payment systems.

Bank of England Governor Andrew Bailey emphasised the importance of evolving with technological advancements: “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 UK economy.”

The BoE will trial various approaches, including:

Integration of wCBDCs: Testing how wholesale CBDCs can interact with programmable platforms and enhance payment processing.
DLT Synchronisation: Examining how DLT can synchronize with existing RTGS systems to improve transaction efficiency.

The BoE’s experiments will also include scenarios involving delivery-versus-payment (DvP) and payment-versus-payment (PvP) transactions. These tests will build on previous projects, such as Project Meridian and Project Agora, and explore the potential for digital and multi-currency platforms.

Collaboration and Future Directions

The BoE’s approach underscores the need for collaboration with various stakeholders, including government bodies and the private sector. The central bank’s efforts are aimed at fostering a forward-looking payment landscape that can adapt to evolving technologies while maintaining financial stability.

The Discussion Paper invites feedback from industry experts and the public by 31 October 2024. The BoE’s commitment to modernising payment systems reflects its dedication to supporting a dynamic and resilient economy.

Conclusion

The Bank of England’s latest initiatives represent a significant step in modernising the UK’s payment infrastructure. By exploring digital currencies and enhancing existing systems, the BoE aims to balance innovation with stability, ensuring that the UK remains at the cutting edge of financial technology.