The Bank of England has rejected blockchain as the basis for a new payments system, but said it wants to leave the door open for other banks to use the technology to settle transactions.
The new payments system will be designed to interface with separate payment platforms underpinned by the distributed ledger technology that underpins blockchain-based currencies such as bitcoin.
The Bank plans to revamp its Real-Time Gross Settlement service, which underpins the settlement of around £500bn of payments between banks and other firms every single day – the size of Britain’s entire output for a year every week.
As part of the plan the Bank will take direct control over the Chaps payment system, used for major purchases (including house) and big cash movements for those who need a central bank underpinning the transfer.
The Chaps system was previously run by a member-led group, but the Bank said its plans will allow it to better manage systemic risks. It also said it would widen access to the systems in order to increase competition among payments providers.
However, the Bank of England rejected blockchain technology because of concerns over its resilience for a service at the heart of the economy.
It said blockchain technology is “not yet sufficiently mature to form the core of the next generation” of payments systems.
In future private sector banks could theoretically create their own individual blockchain payment platforms with the Bank of England allowing a unified ecosystem.
Banks from around the world are scrambling to take the lead in blockchain development, with many predicting the distributed ledger technology could lead to a more efficient and less costly financial system.
Many transactions currently rely on a central clearing authority which holds an electronic ledger detailing the movement of money, but distributed ledger technology removes the need for a central authority by sharing the records with users across the network.
In a separate speech today Neel Kashkari, the governor of the Minneapolis Federal Reserve Bank, said blockchain technology could be bigger than the bitcoin cryptocurrency which brought it to widespread attention.