The application of blockchain technology in the financial industry received a boost recently from the Bank of England, which announced plans to make its payment settlement system compatible with payments based on distributed ledgers.
The announcement came during a speech late last month by Mark Carney, the governor of the Bank of England. Carney explained that the Bank of England is in the process of rebuilding its real-time gross settlement (RTGS) network, which supports payments within the United Kingdom, as well as cross-border payments between entities based there and in other countries.
The change aims to provide several improvements. In addition to making the RTGS system compatible with blockchain-based payment systems as part of an effort to “future-proof” the bank’s operations, the overhaul will also enable less costly cross-border payments (in part by using settlement methods based on distributed ledgers) and richer data collection from payment settlements, Carney said.
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Notably, Carney avoided using the word “blockchain” during his speech. But it seems clear that he had blockchain-based payment systems in mind when he spoke of rebuilding the bank’s payment settlement infrastructure to support “new private payment systems, including those using distributed ledger.”
Carney may also have been referring to the new finance sector when he said that “the economy is reorganising into a series of distributed peer-to-peer connections across powerful networks — revolutionising how people consume, work and communicate,” per a transcript of the speech.
Carney also sounded a lot like an advocate for cryptocurrency (though that term was also noticeably absent from the speech) when he promised that, thanks to the RTGS overhaul, “no longer will access to central bank money be the exclusive preserve of banks."
Cryptocurrency fans tend to be keen on the mantra that innovations like Bitcoin allow you to “be your own bank,” instead of relying on third-party financial institutions.
It would seem, then, that the Bank of England wants to embrace new finance solutions that leverage blockchain technology, even though it remains wary of endorsing the language and terminology of the mainstream blockchain economy.
Carney’s keenness to steer clear of words like “blockchain” and “cryptocurrency” may also signal plans to embrace private or permissioned distributed ledgers, rather than well-known public blockchains, as the basis for the bank’s new settlement solutions.
That said, Carney’s statements also seemed to suggest an openness to supporting a wide range of payment processes that integrate blockchain technology, so companies may enjoy the ability to develop new solutions of their own, as long as they conform with the RTGS system that the bank unveils.
Carney revealed no technical details about how the Bank of England would support payment processing via distributed ledgers. While he said that the bank is currently working with the Bank of Canada, the Monetary Authority of Singapore and private companies “to improve inter-bank cross-border payments, including initiatives based on distributed ledger,” he offered no details about how those initiatives work and whether they incorporate any public blockchain technology.
Time will tell, then, how significant the Bank of England’s turn toward distributed ledgers actually is. But given that the bank, at 323 years old, is one of the longest established and most influential financial institutions in the world, any type of positive energy that it directs in blockchain technology’s direction can only help the world of new finance grow.
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