Bank of England Considers Blockchain Compatibility for Settlement Service

The UK’s central bank said last week that it wants its next-generation settlement system to be blockchain-compatible.

A consultation paper published last week outlined the major characteristics of what the Bank of England’s planned real-time settlement system, known as the Real-Time Gross Settlement (RTGS) service, should constitute.

According to the Bank of England, the RTGS system essentially forms the foundation of what it does as a central bank. The bank began the process of looking at how the system could be augmented, upgraded or outright replaced earlier this year. Among the elements being considered: compatibility with private sector blockchains “if/when they achieve critical mass”.

The paper’s authors said that the deployment of new kinds of financial technologies mean that any real-time payment system created by the central bank will need to be able to handle some kind of integration.

The Bank of England has been exploring fintech applications are part of a new project accelerator, focusing in part on the prospect of a central bank-issued digital currency.

The Bank of England said it sees a role for the real-time payment system in providing those fintech applications with a reliable and fast-moving source of information.

The paper states:

"To operate at their most efficient levels, these technologies require rich data feeds, high availability and seamless messaging. The concept of the distributed ledger, though still in its infancy, is a potentially much more radical innovation, creating new ways for firms to exchange value without relying on central infrastructure."

Promises aside, the paper’s authors go on to note that the technology most likely won’t form the backbone of any new kind of payment system deployed by the Bank of England.

"The resilience characteristics of the distributed ledger in particular are potentially highly attractive from a financial stability perspective," they note. "It is however unlikely that this technology will prove sufficiently mature to form the core of the next generation of RTGS itself."