Bank of England to experiment with wholesale CBDC, synchronization

The BOE is considering applying DLT to its existing settlement system and introducing a wCBDC.

The Bank of England (BOE) is proposing an experimental program using its Real-Time Gross Settlement (RTGS) system and wholesale central bank digital currency (wCBDC) to judge their settlement capacity and interoperability, the central bank announced in a discussion paper. 

The BOE promised to undertake the new series of experiments within the next six months. The experiments largely examine CBDC settlement in comparison with the synchronization of non-CBDC central bank money, as trialed in Project Meridian. A synchronization network integrates with existing RTGS systems.

Not clear that DLT is needed at all

Both CBDC and synchronization approaches may depend on distributed ledger technology. The BOE starts with a word of caution about it:

“The extent to which programmable platforms could impact on our monetary and financial stability objectives will ultimately depend on the likelihood that financial markets take up these technologies at scale. The Bank’s current assessment is that the likelihood of this remains uncertain.”

“Yet to emerge DLT use cases may also affect take-up, so we must guard against a ‘failure of imagination,’” the paper added.

The BOE is revamping its current RTGS system, CHAPS, with the new version expected to debut “in the next few months.” CHAPS crashed earlier in July.

Related: Bank of England Deputy Governor Cunliffe on DLT securities settlement: Not so fast!

Lots of use cases to check out

The BOE outlined five experiments. Three of them would test delivery-versus-payment (DvP) transactions with securities, where delivery of the assets is conditional on the transfer of funds. Those experiments would increase in complexity and build on the findings of Project Meridian.

An experiment with foreign exchange payment-versus-payment (PvP) transactions, where settlement is conditional on the presence of payments in both currencies, is proposed. The BOE is already testing PvP transactions with a synchronization network in the extension of Project Meridian. Now the BOE is proposing to test PvP transactions using sterling pound wCBDC modeled on Banque de France.

Finally, the BOE wants to conduct an experiment using assets and multiple currencies on a single platform. That experiment could be carried out within Project Agora.

The paper raises design questions as an aside. It observed that experiments with wCBDC have so far minted CBDC from currency that was already present in the RTGS, rather than minting the CBDC “natively.” In addition, the platform on which the CBDC is minted may be controlled by the central bank or a third party. In the latter case, the system would be dependent on the resilience of infrastructure beyond the bank’s control.

Responses to the paper are invited through October 31.