Bank of England Seeks Input on Retail, Wholesale Payments Technology

The Bank of England is studying the use of new technologies to enhance both retail and wholesale payments functionality.

While the central bank has been focused on establishing regulatory regimes for the use of stablecoins for retail payments, “we are increasingly complementing that work with a focus on how we can best support innovation both in wholesale payments and financial markets (including through modernization of the Bank of England’s wholesale payments infrastructure) and in banks’ retail payment offerings,” Sarah Breeden, deputy governor fir financial stability at the Bank of England, said Monday (April 15).

In a speech delivered at the Innovate Finance Global Summit 2024, Breeden said the central bank is seeking input from the private sector and will release a Discussion Paper on these topics during the summer.

In the wholesale space, tokenization could reduce the need for manual reconciliation and long chains of intermediaries, thereby boosting the speed and efficiency of post-trade financial market processes, Breeden said in the speech.

Earlier in April, the Bank of England and the Financial Conduct Authority (FCA) consulted on a Digital Securities Sandbox that will enable the private sector to set up real-world trading venues and settlement systems using distributed ledger technology (DLT) and other new technologies, Breeden said. They plan to start accepting applications for this financial market infrastructure (FMI) sandbox this summer.

“The sandbox will last for five years, during which time the Bank of England, FCA and HM Treasury intend to learn from firms’ activity and, subject to that, to create a new permanent regulatory regime for the trading and settlement of digital securities,” Breeden said in the speech.

In the retail space, the Bank of England is exploring whether to issue a retail central bank digital currency (CBDC) that would, for one thing, ensure the “uniformity of money,” Breeden said.

When the Bank of England received comments on the idea of a digital pound in 2023, many people expressed concerns about privacy and control over how they spend their money. The government aims to guarantee these things, Breeden said.

“Let me emphasize — we have not taken any decision on whether or not to issue a digital pound,” Breeden said in the speech. “But preparatory work is prudent to ensure the option to issue is available if needed.”

The Bank of England and HM Treasury released a report in January saying that a CBDC would not replace cash and that the country would need legislation to protect CBDC user privacy.

In another recent development, the Bank of England was one of the participants in Project Agorá, an effort by several central banks and the Bank for International Settlements to test tokenization in a bid to improve cross-border payments.