Bank of England Begins CBDC and Digital Ledger Trials

The Bank of England has announced that it will begin trials of distributed ledger technology (DLT) and central bank digital currencies (wCBDC) to track changes in the payments landscape and assess the opportunities and risks of developments in financial technology.

The rise of cryptocurrencies and the DLT that underlies them has prompted central banks around the world to consider how they might engage with these technologies. Many are working on projects, individually, together or through the Bank for International Settlements (the umbrella organisation for the world’s central banks), to explore the impact of the emerging technology on global monetary systems. The BOE, for example, is part of the BIS’s Project Agora and is considering trialling tokenised commercial bank deposits and central bank money swaps across multiple currencies on a single platform between seven banks. “Trust in money and payments is fundamental to the bank’s responsibility for monetary and financial stability. As innovation continues in this area, we must also renew our role to support a robust and dynamic UK economy,” said Andrew Bailey, the commissioner, in the filing.

One way central bank money interacts with distributed ledger platforms is through synchronization, the report said. This is when an asset is transferred from one platform to another — possibly including a DLT-based platform — with the cash leg of the transaction being on the bank’s Real-Time Gross Settlement ledger.

The file also mentioned that CBDCs, which are digital tokens issued by central banks and used only by institutions, could help with interactions with programmable platforms.

“Our experimental program will be based on the likely policy outcome of innovations in these CBDCs. The program will cover both wCBDC and synchronization, and the relative merits of these two approaches,” the bank said in the filing.