In order to process the transactions made by users across inter bank network, The Bank of England (BoE) is revamping its original payment system, incorporating the much needed blockchain technology in its framework. This will enable smaller fintech firms across the network to interact with the central bank directly without having to go through the preserve banks.
Very recently the announcement was made by The Bank of England in the hindsight of making its realtime Gross Settlement System (RTGS), modern and up-to-date with the latest standards of technology. RTGS plays a key role in maintaining the banking structure of England, performing a shocking amount of transactions, worth almost $500 billion in a year. This system also acts as a pillar in sustaining roof of Britain’s banking and trading system. The transactions handled by The Bank of England’s Real-Time Gross Settlement system in a year make up approximately 33% of the country’s total annual economic yield.
Many fintech firms will have the option to access the network of banks and in order to test the feasibility and possibility of connecting blockchain firms to the network, a proof of concept (PoC) was presented by the British central bank with a framework of operations for various blockchain firms operating in a distributed ledger technology (DLT) network.
The major breakthrough is achieved by allowing users to bypass a central proxy large bank for operations, maintaining a high level of security and transparency. The reason behind redefining the entire system is to lend the ability to perform direct communication with the central bank to the smaller firms. Blockchain foundation employing the distributed ledger technology provides the necessary transparency and security parameters that are needed to perform such a direct communication.
Previously, the Bank of England asked various firms across the blockchain the network, including the payment firms such as Baton Systems and Token, R3 and Clearmatics for their comments on the feasibility and usability of this framework for revamping the banking and trading system using the blockchain technology. A majorly positive response was given back by all the parties, along with suggestions on optimizing it for better usability on a larger scale. The framework was asked to be tested for its usability with the distributed ledger technology (DLT) and how it could be tweaked to expand its range of functionality. This framework was termed as ‘not yet sufficiently mature’ back in March, 2018.
Although the Bank has concluded that Distributed Ledger Technology (DLT) is not yet sufficiently mature to provide the core for the next generation of RTGS, it places a high priority on ensuring that the new service is capable of interfacing with DLT as and when it is developed in the wider sterling markets.
As the proceedings followed, and the system was tweaked intricately to handle large scale operations, The Bank of England explained this past Monday:
All participants confirmed that the functionality offered by the renewed RTGS service would enable their systems to connect and to achieve settlement in central bank money. A number of recommendations were received to ensure optimal access to central bank money.
The interest of The Bank of England in employing the inter-ledger system for carrying out its operations among the central banks is evident from its partnership with Ripple that happened last year. Brad Garlinghouse, the Chief Executive Officer of Ripple, stated:
We believe in an Internet of Value, where cross-border payments should move at the same speed as information – like photos or emails – moves on the Internet today. Critical to making that vision a reality is enabling real-time settlement across domestic systems. To that end, the Bank of England’s PoC with Ripple is a watershed moment. We applaud them for being one of the first central banks worldwide to look at how blockchain technology can power instant international payments.
Up until last year, although The Bank of England had started its exploration of the blockchain world in order to revamp the banking framework through updating its RTGS but at that time this entire pipeline was not capable enough to handle operations on a grand scale.
One of the possible reasons of speeding up this entire process by the British government is Brexit. Since United Kingdom is no longer a part of the European Union, its next major aim is to attract as many fintech firms as possible to boost its economic value. In order to make United Kingdom a leader in banking and trading, despite being cut-off from the European Union (EU), this is a step in a very right direction as we all are well aware that blockchain is the technology of the future. This is just another example of how blockchain technology is reshaping the future of banking and trading and how different departments related to the modern man are affected by it.
The entire system is scheduled to be up and running by 2020 and will surely change the way how fintech firms interact with the the central bank of Britain.