The Bank of England has published a consultation paper that outlines the central bank’s vision for the next generation of its Real-Time Gross Settlement (RTGS) service.

“Earlier this year, as RTGS approached its 20th birthday, the Bank announced its intention to draw up a blueprint for a new generation of RTGS, capable of supporting the future demands placed on it by a rapidly changing environment”, the BoE said.

The bank has identified five key strategic drivers for change over the likely lifespan of the next generation RTGS and has proposed that the new RTGS service must

• Be capable of responding to the changing structure of the financial system
   
• Recognise that payment system users want simpler and more resilient pathways for their payments
   
• Of interfacing with a range of new technologies being used in the private sector, including distributed ledgers, if/when they achieve critical mass
   
• Remain highly resilient to the increasingly diverse range of threats to continuity of service
   
• Have the capacity to support the future evolution of regulatory and monetary policy tools

With respect to distributed ledger technologies, the paper stated that although the technology is still in infancy, it is “a potentially much more radical innovation, creating new ways for firms to exchange value without relying on central infrastructure”. It said that the bank will also continue to explore the scope for using distributed ledger and other innovative technologies in its own systems, including through its recently announced FinTech Accelerator.

“The resilience characteristics of the distributed ledger in particular are potentially highly attractive from a financial stability perspective. It is however unlikely that this technology will prove sufficiently mature to form the core of the next generation of RTGS itself”, it added.

The paper pointed out that the three key potential benefits of distributed ledgers are trust, resilience and shared state. It added that of these three, the chief potential benefit when applied to core settlement in an RTGS system is “resilience”; trust is already created by the central bank operating as a neutral party, and state is managed through relatively simple reconciliations

The bank has found that currently the technology is not sufficiently mature to provide the exceptionally high levels of robustness required for RTGS settlement. It emphasized that further work is required to address privacy and system scalability in particular, adding:

“The Bank will also pursue an active research agenda exploring the scalability, security, privacy, interoperability and sustainability of distributed ledger platforms and solutions. This research will be undertaken in partnership with academia, other central banks, and through the FinTech Accelerator”.