Bank Of England Rejects DLT For New Payment System
The Bank of England has released a new document that has classified Distributed Ledger Technology (DLT) as not “sufficiently mature” to function as the core of the revamped real-time gross settlement (RTGS) service that is being proposed for the UK. According to the document, “most respondents endorsed that decision.”
“As stated in the Consultation Paper, the Bank has decided not to build the renewed RTGS service on Distributed Ledger Technology, in light of its findings that the technology is not yet sufficiently mature to provide the exceptionally high levels of robustness required for RTGS settlement.”
Multiple countries administer their own RTGS services which function as interbank funds transfer systems. They work as platforms to implement monetary policy and provide liquidity to the financial ecosystem, and are often used for high-value transactions that need to be cleared immediately. The systems are usually operated by central banks and function as critical instruments for their respective economies.
In September 2016, the Bank of England found that DLT “could potentially provide an RTGS system with strong defence against physical events and cyber-attacks” and has the possibility to operate as an “attractive platform for banking applications over the medium term.” However, after further review, the bank found that “further work is required to address privacy and system scalability in particular, and these and other topics suggested by this initial work will drive the Bank’s future research programme on this technology.”
Nevertheless, the Bank of England will continue to actively pursue a proactive research agenda that explores the technology in detail. This includes maintaining an RTGS service that interoperates with new technologies and may eventually incorporate DLT and blockchain.
“But the new generation of RTGS will be built with the flexibility needed to ensure it can interface with such technology as and when it is developed in the wider sterling markets.”