Bank of England to Test Wholesale CBDC

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 evaluate their settlement capacity and interoperability, as stated in a discussion paper.

The BoE committed to conducting these new experiments within the next six months.

These experiments will primarily compare CBDC settlement with the synchronization of non-CBDC central bank money, as tested in Project Meridian.

A synchronization network integrates with existing RTGS systems.

Both CBDC and synchronization approaches may rely on distributed ledger technology. The BoE cautions:

“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 updating its current RTGS system, CHAPS, with the new version expected to debut “in the next few months.” CHAPS experienced a crash earlier in July.

The BoE outlined five experiments. Three will test delivery-versus-payment (DvP) transactions with securities, where asset delivery is conditional on fund transfer.

These experiments will increase in complexity and build on the findings of Project Meridian.

Another experiment will involve foreign exchange payment-versus-payment (PvP) transactions, where settlement is conditional on the presence of payments in both currencies.

The BoE is already testing PvP transactions with a synchronization network in the extension of Project Meridian.

Now, it proposes testing PvP transactions using sterling pound wCBDC modeled on Banque de France.

Finally, the BoE aims to conduct an experiment using assets and multiple currencies on a single platform, potentially within Project Agora.

The paper also raises design questions. It notes that wCBDC experiments have so far minted CBDC from currency already present in the RTGS, rather than minting the CBDC “natively.”

Additionally, the platform on which the CBDC is minted may be controlled by the central bank or a third party.

In the latter scenario, the system would depend on the resilience of infrastructure beyond the bank’s control.

Sources:

https://cointelegraph.com/news/bank-of-england-wholesale-cbdc-experiment

https://x.com/BoE_PressOffice/status/1818219142958219567

https://www.bankofengland.co.uk/news/2024/july/chaps-issue-resolved?sf195205891=1