Bank of England rolls out consultation paper for wholesale CBDC

The Bank of England plans a series of experiments with distributed ledger technology and wholesale CBDCs to assess their impact on the evolving payments landscape.

The Bank of England aims to address rapid advances in money and payments technologies with a wholesale central bank digital currency, according to a discussion paper published by its governor, Andrew Bailey, on July 30. Titled “The Bank of England’s approach to innovation in money and payments,” the document highlights that innovations in money and payments, including distributed ledger technology and tokenization, present “opportunities and risks.”

“Innovations in money and payments are therefore inseparable from the goals we strive to achieve as central banks. […] “Understanding these innovations, preparing for them, and supporting their safe adoption are core to our goals,” Bailey said.

Unlike retail CBDCs designed for the general public, wholesale CBDCs are digital versions of a country’s currency designed solely for financial institutions. These digital currencies facilitate transactions between banks and other financial institutions, increasing both the speed and security of large-scale transactions and payments.

The central bank acknowledges there is an “interoperability challenge” that means different jurisdictions could create new systems that “cannot interact effectively.” To address this, the regulator wants to develop a “sync interface” – a tool that would allow an asset to be transferred from one party to another on an external platform, with the cash leg of the transaction occurring on the real-time gross settlement platform.

Getting feedback from the public

To remain competitive in the global central banking arena, the Bank of England plans to test a variety of use cases, functions, and designs for wholesale CBDCs and their synchronization. While specific timelines for these experiments have not been announced, the bank is seeking public feedback on its proposed approach, with responses expected by the end of October.

In June, the Bank for International Settlements released a report that found the vast majority of central banks worldwide are staying away from issuing retail versions of CBDCs in the medium term, with only 12% of respondents planning to do so. The BIS report also noted that wholesale CBDCs are more likely to be issued within the next six years, with the potential for nine such currencies to be in circulation “by the end of this decade.”