In a recently released transcript of a cancelled speech that was to be given by Bank of England Governor Mark Carney highlighted the promise of FinTech to deliver more resilient financial infrastructure, more effective trade and settlement, and new ways to encode, share and analyse data.
Speaking of blockchain and distributed ledger technologies, Carney said that what was once stone, wood or paper and always centralized, is now digital and may become distributed.
“FinTech innovators are exploring the potential of distributed ledger technology to simplify the settlement chain, reduce its cost, and raise its speed while increasing resilience. The instruments involved range from equities to bank loans. However, the challenges facing such projects are legion, including reliability, resilience, security and scale”, Carney wrote.
To that end, Carney mentioned that the Bank of England is exploring the use of distributed ledger (DL) technologies in its core activities, including the operation of RTGS.
“The great promise of distributed ledgers for central banks is their potential to enhance resilience. Distributing the ledger means multiple copies of the system. It can continue to operate if parts get knocked out. That removes the single point of failure risk inherent in a centralised system”, he added.
Carney further stated that a DL for everyone could open the possibility of creating a central bank digital currency, adding:
“On some levels this is appealing. For example it would mean people have direct access to the ultimate risk-free asset. In its extreme form, it could fundamentally and perhaps abruptly re-shape banking”.
Major central banks are contemplating to come up with nationalized digital country. While the Reserve Bank of Australia and the People’s Bank of China have expressed their optimism with the concept, the Bank of Canada recently revealed that it has begun experiments with ‘CAD-Coin’ – its digital fiat currency.
Carney also pointed out the BoE’s plan to launch a FinTech Accelerator to work in partnership with FinTech firms on challenges faced by central banks. He said that the bank has been engaging with FinTech firms to understand better the financial stability risks that could emerge as banking is re-shaped.
“The Bank is calibrating its regulatory approach to FinTech developments. FinTech should neither be the Wild West nor strangled at birth. The Bank is devoting considerable resources to ensure whatever develops is sustainable, not ephemeral”, Carney said.