The Bank of England announced that it will rebuild its Real Time Gross Settlement (RTGS) system to interface with blockchain technology in a speech by the bank’s Governor Mark Carney on June 21.
According to Carney, the bank would anticipate, adapt to and accelerate change for the common good. These moves included measures to eliminate shadow banking in a fair, effective financial system for taxpayers. Carney stated that in order to keep markets fair, they must be professional, dynamic, open and accountable for their actions.
To maintain this standard, the Bank of England must embrace new forms of technology. It was the first major center to adopt electronic trading, and now, it seeks to include transactions using Distributed Ledger Technology (DLT).
Carney sees the evolution of commerce, communications and the economy being reorganized into a series of distributed peer-to-peer connections. He stated, “Intangible capital is now more important than physical capital.” Because of this, the bank has already started creating new infrastructure for new forms of finance.
The rebuild of the RTGS will provide a platform for private innovation in three ways:
First, the platform will allow for easy integration with new private payment systems, including those that utilize DLT to allow for innovations in wholesale markets, as well as corporate banking and retail services. In this way, cryptocurrencies will work like cash, without the need to flow through a central system, and electronic payments will become instantaneous. Carney said, “Checkout can be eliminated. The customer, not cash, will reign supreme.”
Second, RTGS will be optimized for cross-border payments, thereby lowering excessive costs. Two private PSPs joined earlier in the year, while the bank continues to work on connecting RTGS with systems run by other central banks, including the Bank of Canada, the Monetary Authority of Singapore and numerous private-sector firms.
Third, the Bank of England wishes to make it easier for the UK financial system to utilize big data to its full potential. By capturing much richer financial data on every transaction, the bank will improve access to both domestic and global financial systems, giving corporate end-users more choices. The new technology may also provide for better systems for anti-money laundering and protecting against financial terrorism while enforcing rules and regulations, according to Carney.
He expects the world economy to be reordered, resulting in the need for the UK to improve its technology to maintain its share in cross-border capital flows. To do this, he sees the need for responsible openness to new finance technology as resting on three pillars. These include: strong global standards, deep supervisory cooperation and ending the policy of “too big to fail.” These pillars will underpin the UK government’s new Global Finance Partnerships Strategy, as it takes on more of a supervisory role in major emerging economies while creating the infrastructure for cross-border capital flows in multiple currencies.
The Bank of England will partner with the EU on managing the risks associated with Brexit while providing technical support to branches of the UK government as needed, and it is exciting to see that this process will include a plan for incorporating blockchain technology and digital payments.
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