The National Payments Vision: Run Britain with Britcoins on a Britchain?

Two weeks ago, I asked where the UK Payments Vision is. It should have been delivered this year, and yet there is still no sign of it. Having said that, the Bank of England did start to build a view. In late July 2024, the Bank of England launched a Discussion Paper on Innovation in money and payments, building upon a speech by Sarah Breeden in April, where she outlined the Bank’s interest in the ‘trains and rails’ of payments, capitalising on the benefits of innovation in payments while ensuring they remain safe.

The paper covers a range of topics in retail and wholesale payments and explores the role that a central bank should take as payments and money move onto digital platforms.

In response to this, UK Finance – the British trade association for the UK banking and financial services sector – have worked with member firms from across the payments and capital markets sectors to develop a comprehensive response to the Discussion Paper. You can download the UK Finance response paper here. Their core recommendations are:

• One regulatory voice, led by the Bank of England, that can provide strategic decision-making on future money and payments infrastructure.
• A greater decision-making role for the industry in the development and delivery of future payments infrastructure.
• Excellent delivery capabilities, that can execute on the strategic investment decisions needed for the UK and provide confidence to those that invest in that infrastructure.

Their response provides further details on a number of workstreams including:

• Delivering on a National Payments Vision and Strategy and how this can be taken forward in partnership with the Bank.
• The future of the UK’s real-time payments infrastructure and developing a new delivery model.
• The Regulated Liability Network and its next phase providing support to the Bank’s proposed experimentation.
• Digital Gilts, a digital sovereign bond issuance, ideally settled using on-chain forms of wholesale settlement.
• A Digital Securities Sandbox (DSS) and how its benefits will be significantly amplified by the availability of digital money solutions (including central bank-provided ones) within the Sandbox.

To deliver the payments roadmap for the National Payments Vision & Strategy, and allow for delivery, they propose the formation of a joint Payments Infrastructure Coordination Group, comprising industry and authorities. A clear, prioritised and stable multi-year change agenda is essential for effective planning.

This group should prioritise the delivery of initiatives intersecting existing infrastructure (for example Real Time Gross Settlement, Faster Payments, LINK) and future projects (such as the Regulated Liability Network and Digital Pound), as well as consider how this enables the ecosystem of innovators, fintechs and overlay services (including Digital ID and Open Banking) to flourish.

The response intrigues me, specifically the reference to digital gilts being issued by UK Government. This is something that City minister Tulip Siddiq has been pushing for during the summer. The concept is that the UK will start issuing “digital gilts” in order to modernise its markets to compete internationally. While traditional bonds moved from paper to electronic trading over the past years, the idea for the future years is to issue a digital bond (gilt) that is traded using blockchain technology and smart contracts.

The government’s Debt Management Office (DMO), an executive agency of the Treasury that is responsible for issuing and managing the government’s debt, has resisted the move. This is because they believe that blockchain for issuing bonds is still in its infancy and accounts for only a small amount of the market. Add to this that multiple systems are being developed for issuing digital bonds and you can see that the infrastructure developed today may be different to that of tomorrow.

Nevertheless, Tulip Siddiq is determined to move ahead to combat the risk of the UK being “left behind” by global peers. I guess she could have been influenced by Larry Fink’s BlackRock who captured a third of the tokenized treasuries market in just two months earlier this year, whilst JPMorgan Chase, Visa, HSBC, Santander Bank, and Goldman Sachs are among the other traditional players vying for a slice of a market estimated to be worth $14 trillion by 2030.

No wonder Tulip wants to be in that space and it will be interesting to see how that plays out.

I was also intrigued that the UK Finance response had no mention of the Retail CBDC developments. Commonly referred to as Britcoin, the idea is that the central bank would issue a digital pound to replace cash, available to “households and businesses for their everyday payment needs”. Maybe that is why the industry avoided commenting on that bit, as it circumvents them? Oh, maybe that is why they are arguing for a Wholesale CBDC, issued by the central bank to the national banks, rather than a Retail CBDC.

In relation to retail CBDC, we believe that there are other ways that the industry can deliver the outcomes the Bank seeks with retail CBDC, that would be much more cost-effective, have a lower risk to the economy, and avoid dependencies and potential delays. This could include through a public-private partnership approach to create a platform for innovation, like that trialled by the RLN project, or through expansion of Open Banking Standards with a view to creating an orchestration layer to unlock new functionalities for UK consumers and businesses.

It will be interesting to see how that plays out too.

For more information on the UK Finance developments, contact briony.krikorian-slade@ukfinance.org.uk. For more information on the developments of digital gilts, try an email to tulip.siddiq.mp@parliament.uk.

Meantime, the vision of running Britain with Britcoins on a Britchain sounds an awful lot like the India stack I referred to yesterday. Nothing like following the leader is there?