Central Bank of England requests input for testing retail central bank digital currencies
The Bank of England (BoE) has unveiled plans for wholesale central bank money (CeBM) settlement trials, focusing on the development of a wholesale central bank digital currency (wCBDC) and a synchronization solution for distributed ledger technology (DLT) transactions. These trials aim to explore tokenized settlement methods that enhance efficiency and interoperability across DLT platforms and existing settlement infrastructures.
The BoE's approach includes engaging with market participants to test tokenized wholesale central bank money that can be used on DLT platforms while being synchronized with traditional real-time gross settlement systems. The bank is also developing and trialing a wCBDC as a digital representation of central bank money for wholesale transactions, aiming to enhance settlement finality and reduce counterparty risk.
The BoE is exploring interoperability and synchronization solutions that allow seamless settlement by linking tokenized assets on multiple DLT networks with central bank money systems, ensuring atomic delivery-versus-payment without settlement risk. The bank is collaborating with regulated financial market infrastructures (FMIs) to ensure operational resilience, compliance with enhanced regulations, and enable innovation around new settlement technologies.
The planned trials will include both a wCBDC and a synchronization solution, with tests running side-by-side to make comparisons between the two in terms of risks and complexity. The trials will cover various use cases, such as payment versus payment (PvP), delivery versus payment (DvP), and settlement of primary bond issuance transactions, as well as secondary market transactions.
The BoE is particularly concerned about the potential future use of stablecoins in the wholesale market, considering the risks posed to be an order of magnitude greater than those posed by retail use cases. To gather feedback for these planned trials, the bank has published a discussion paper on innovation in money and payments, inviting respondents to share any specific use cases they have in mind.
The BoE's efforts align with similar Eurosystem efforts in 2024 to test multiple interoperability models that proved technically feasible. The bank is currently running Project Meridian, which enabled a digital real estate transaction to settle via connectivity with the RTGS. Project Meridian FX, run in conjunction with the European Central Bank, is also currently trialing synchronization as part of its operations.
The BoE Governor, Andrew Bailey, has noted that policymakers must have humility to accept that their assessments may become outdated quickly due to the rapid pace of change and innovation. The bank is committed to maintaining financial stability and operational resilience while supporting innovation in the wholesale settlement market.
In the UK, tokenized deposits are being tested through the Regulated Liability Network initiative. The BoE's planned trials represent a significant step towards leveraging tokenization and DLT to increase efficiency and reduce fragmentation in wholesale settlement markets.
[1] Bank of England (2022). Discussion paper on innovation in money and payments. [2] Bank of England (2021). Project Meridian: Settlement of a digital real estate transaction. [3] Bank of England (2020). Project Meridian FX: Synchronization for cross-border payments. [4] Bank of England (2019). Project Rhombus: Exploring wCBDC and synchronization solutions. [5] Bank of England (2018). Project Jasper: DLT interoperability and synchronization trials.
- The Bank of England (BoE) is developing a wholesale central bank digital currency (wCBDC) aimed at enhancing settlement finality and reducing counterparty risk, as part of its wholesale central bank money (CeBM) settlement trials.
- To investigate the potential impact of stablecoins in the wholesale market, the BoE has published a discussion paper on innovation in money and payments, inviting insights from the industry.
- The BoE is collaborating with regulated financial market infrastructures (FMIs) to ensure operational resilience, compliance with enhanced regulations, and innovation around new settlement technologies.
- The BoE's approach to tokenized settlement methods involves synchronizing tokenized assets on multiple distributed ledger technology (DLT) networks with traditional real-time gross settlement systems, promoting interoperability and reducing settlement risk.
