The Bank of England has posted a Discussion Paper on the payments ecosystem. The Paper looks to review innovations in payments and how they can impact the Bank’s monetary and financial stability objectives while bringing opportunities and improvements.
The Paper outlines the Bank’s current plans, including:
plans in several areas:
- The Bank has set out the financial stability risks of financial markets moving away from using central bank money. The Bank’s approach is to preserve the role of central bank money as an anchor for confidence in the financial system.
- Preserve the role of central bank money. The Bank will explore technological innovations to the systems it operates, including enhanced functionality for the renewed Real Time Gross Settlement (RTGS) system and a program of experiments that would also cover wholesale central bank digital currency (CBDC).
- The Bank sets out its objectives in retail payments and the importance of ensuring households and businesses across the UK can make payments with ease, speed and confidence. Meeting these retail payments objectives will require leadership by the UK authorities in this space. The Bank will work closely with HM Treasury, the Financial Conduct Authority, and the Payment Systems Regulator to achieve this.
Andrew Bailey, Governor of the Bank of England, says that confidence in money and payments is key to their mission.
“As innovation in this space continues, our role must also evolve, to support a robust and dynamic UK economy. Building on our work in recent years on new forms of digital money and renewing the Bank’s own RTGS infrastructure, we can now do more to explore new technologies in wholesale payments and to encourage greater innovation in interbank retail payments. To do that will require input and close collaboration from the private sector and other authorities, and this Discussion Paper sets out our thinking in these areas.”
The Paper notes that central banks must move quickly to adjust to accommodate changes in payments. This may include blockchain or distributed ledger technology (DLT), which utilizes shared ledgers.
“This could reduce frictions and inefficiencies by removing the need for buyers and sellers manually to reconcile their ledgers with others involved in the transaction. This approach also allows for certain functions to be built into financial contracts through automation, such as making coupon payments on bonds,” states the paper.
The Bank has partnered with the Financial Conduct Authority to support safe innovation with a Digital Securities Sandbox.
While the Bank has been investigating a CBDC, no decision has been made as to whether a retail CBDC will be made available adding that cash would not be replaced by digital money.
The Bank is seeking feedback on the paper by October 31, 2024. You may email PaymentsInnovationDP@bankofengland.co.uk to respond.
The Discussion Paper is available below.