The Bank of England has published a document which explains the institution’s plans to reform its “real-time gross settlement” service – the basis of of approximately £500 billion in transactions every day between banks and businesses.
In the document, there’s no approval of blockchain – something which many financial analysts and commentators may have expected since the digital currency has been in the ascendancy for some time.
Bitcoin – which is said to be highly secure because it uses the distributed ledger technology called blockchain to record transactions – reached record highs in trading recently and is gaining acceptance in a growing number of countries and with an increasing number of businesses.
The blockchain system is, however, being studied by the Bank of England as well as many financial institutions around the world with a view to eventually incorporating it into the global financial system.
It’s not necessarily inevitable that this will happen, but blockchain is impossible to ignore. There were more than 220 million transactions based on blockchain yesterday, according to Blockchain.info – and the chart tracking such statistics show a steep and steady incline.
In fact, that’s almost twice as many transactions as this time last year. If it keeps going like this, trade based on digital currencies based on blockchain technology will overtake many national currencies within a few years.
It was probably always too much to expect the Bank of England to adopt blockchain since it is necessarily a conservative institution concerned with financial stability and security.
Andrew Hauser, executive director for banking, payments and financial resilience, says the real-time gross settlement service is a “critical piece of national infrastructure”, and it is vital that it “keeps pace with a fast-changing payments landscape”.
The Bank of England’s RTGS system is applicable for such things as:
- Faster Payments (used for online and mobile payments);
- Bacs (used for direct debits and salaries);
- Cheque and Credit (used for cheque processing);
- Link (used for ATM withdrawals); and
- Visa Europe (used for card payments).
In additional comments which may be an indication that the Bank may accept blockchain in the future, Hauser says: “This blueprint sets out a vision of a renewed RTGS service that will safeguard financial stability whilst enabling innovation.”
And in the report itself, the Bank of England says: “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.
“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.”