The Bank of England and the London branch of the BIS Innovation Hub (BISIH) are launching the DLT Innovation Challenge. It has a novel aim of demonstrating the usage of central bank money on third party ledgers. This contrasts with most central banks, which prefer to operate central bank digital currencies (CBDC) on ledgers where they have 100% control.
The Challenge will take place in September and October, with applications open until 23 July. It’s looking for local or international participants, including those with experience of stablecoin issuance.
Today most high value transactions are settled with central bank money. As more securities move onto DLT, there’s a question of what will be used for settlement, with central banks having a clear preference. But in the short term the decision may be based on what’s available: stablecoins, tokenized deposits, a connection to the conventional wholesale settlement system, or a wholesale CBDC (wCBDC). If tokenized deposits are available on-chain but central bank money is not, that could swing the decision. The UK’s position differs from many jurisdictions in this regard because there’s Fnality, the DLT-based wholesale payments system, which enables on-chain settlement using central bank reserves. It’s backed by 20 global institutions.
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