Bank of England explores blockchain for a settlement system
The Bank of England states that it is seriously considering distributed ledgers to modernize the entire settlement system of the country. Shafik, the deputy governer of the Bank of England, stated that the bank has laid out a four-point vision for the initiative. Its goal? Deliver the technological assessment this year and start development in 2017. Focus is of course, blockchain, the technology behind Bitcoin – with a new fancy abbreviation DLT.
Shafik mentions that the blueprint of this research will answer four questions the Bank of England needs answering. Questions include the policy objective of the bank, what functions the payment system should have, who should have access to the system and what the role of the Bank of England should be.
And there are some unique challenges the bank faces when it comes to using the Distributed Ledger Technology. The decentralized aspects of the technology form a problem for the centralized institution and how it would overcome it or use it to its advantage is curious.
Shafik says: “We may redesign some of the mechanics to make more secured payments instead of settlements across the entire book of a central bank or for a clearing house. The incredibly strong and effective cryptography and verification algorithms will allow anyone on the Distributed Ledger Technology to own a copy of the entire ledger and hand out authority for managing and updating purposes.”
The technology will be fully analyzed along with a few other innovations like electronic money and new payment methods, but also machine learning. It seems the Bank of England is going all-in on digital innovation on all fronts. Which is very interesting to see and very curious to see from a large bank such as the central Bank of England.
History of Bank of England
Shafik claims that the position that the bank has taken on this project is very close to what the central bank has always tried to accomplish throughout history. Shafik used language suggesting she was very familiar with the history of the bank and its story and legacy. The bank has found a way, or is at least investigating a way, to settle financial obligations between banks in a safe and fast way.
The information about the path the bank has taken has been updated throughout the years to integrate new technologies like Distributed Ledger Technology. Real-time gross settlement has been a focus-item for the central bank sinds de nineties.
Shafik says that by allowing multiple banks to settle large sums of money as peers, through an electronic transfer, in real-time, the risks go down tremendously as banks process gigantic amounts of payments. There is no more risk of bringing down a system as the ledger is shared amongst all banks and to bring down the system, all of the ledgers need to be taken offline.
The current system is now 20 years old and it is long overdue for the innovation to walk through the door at all of the banks in the world.