IRSG response to Bank of England’s discussion paper on innovation in money and payments

Published 31 Oct 2024

The IRSG welcomes the opportunity to respond to the Bank of England’s (the Bank) discussion paper ‘The Bank of England’s approach to innovation in money and payments’ dated 30 July 2024 (the Paper).

This response sets out some key considerations in response to the Paper. Overall, we are strongly supportive of the Bank’s leading efforts to support and deliver innovation in payments and money. The modernisation of UK financial services through innovation in payments is key to their continued international competitiveness. We look forward to continuing to work with the Bank to support this.

Regarding the Bank’s approach to innovation in money and payments, it is the IRSG’s view that:

• The Bank is taking steps to advance wholesale central bank digital currencies (wCBDCs) and Real-Time Gross Settlement (RTGS) systems, with initiatives like the Digital Securities Sandbox (DSS) to enhance the UK's competitiveness. However, the UK is behind global leaders like France/the Eurozone and Singapore in wCBDC implementation.
• The private sector's role is vital for accelerating innovation, particularly in digital currency and payment systems. Private-led digital identity (ID) solutions and tokenised financial products have shown promise in reducing fraud and enhancing efficiency.
• Clear and consistent legal frameworks for digital money and assets are essential for safe innovation, including protections for users of new payment technologies. A collaborative regulatory approach between the Bank and the Financial Conduct Authority (FCA) is needed to address systemically important stablecoins and develop supportive environments for tokenised assets and stablecoins.
• Diverse distributed ledger technology (DLT) platforms need consistent regulatory standards to achieve interoperability. While mandating a single solution is not feasible, establishing industry-wide standards through private-public collaboration can reduce complexity, lower costs, and encourage adoption of DLT-based financial solutions.
• To remain competitive in cross-border payments, the UK’s engagement in international projects like Project mBridge is critical. Cross-border wCBDCs could streamline FX and correspondent banking, reinforcing the need for consistent regulatory standards across jurisdictions to support multilateral payment infrastructures.