The Bank of England has indicated it will consider the impact of distributed ledgers as part of a plan to modernize the country’s settlement system.

During a speech given at the Bank of England yesterday, Minouche Shafik, the central bank’s deputy governor for markets and banking, laid out a four-point vision for the initiative, which has the mandate to deliver goals by the end of this year, with technological development beginning in 2017.

The blueprint will seek to answer four questions, Shafik said. These include defining the bank’s policy objectives, determining what functions the payment system should have, establishing who should be able to access the system and electing the right role for the Bank of England to play in the service’s delivery.

As for distributed ledger technology (DLT), Shafik said that the innovation poses “profound challenges” due to its ability to decentralize the verification of payments, with a communal ledger serving the role of a traditional third party.

Shafik said:

”It may reshape the mechanisms for making secured payments: instead of settlement occurring across the books of a single central authority (such as a central bank, clearing house or custodian), strong cryptographic and verification algorithms allow everyone in a DLT network to have a copy of the ledger and give distributed authority for managing and updating that ledger to a much wider group of agents.”

Shafik continued by saying that DLT will be analyzed alongside other innovations such as electronic money, new methods of payments and machine learning.

Rooted in history

In statements, Shafik sought to position the project as one that was close to the Bank of England’s historical goals. Her remarks drew deeply from the history of the central bank, beginning with the story of why it emerged as a way to settle financial obligations between domestic institutions.

Also mentioned was how this mandate has been updated over time following the integration of new technologies, with an emphasis directed toward the real-time gross settlement system (RTGS) introduced in the mid-1990s.

“By allowing banks to settle high value transactions between each other, electronically, in real time, RTGS eliminated settlement risk on the largest payments flows – the ones most likely to threaten financial stability by bringing down the system if they failed,” Shafik said.

Given that the system is now 20 years old, Shafik said the time had come for the organization to reconsider how it would deliver on its mandate even as the pace of technological change accelerates.

Image credit: IR Stone / Shutterstock.com

Disclaimer Read More

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

This article is intended as a news item to inform our readers of various events and developments that affect, or that might in the future affect, the value of the cryptocurrency described above. The information contained herein is not intended to provide, and it does not provide, sufficient information to form the basis for an investment decision, and you should not rely on this information for that purpose. The information presented herein is accurate only as of its date, and it was not prepared by a research analyst or other investment professional. You should seek additional information regarding the merits and risks of investing in any cryptocurrency before deciding to purchase or sell any such instruments.