On 27 October 2023, the Bank of England (BoE) published a speech by Jon Cunliffe, Deputy Governor for Financial Stability, delivered at the Economic of Payments XII Conference at the Federal Reserve Board. The speech is entitled, ‘Money and Payment – a ‘black ships’ moment?’.
In his speech, Mr Cunliffe makes the following remarks:
- In February 2020, the G20 Finance Ministers and Central Bank Governors tasked the Financial Stability Board (FSB), the Bank for International Settlements’ Committee on Payments and Market Infrastructures (CPMI) and others to develop a roadmap to enhance global cross-border payments. Work by the FSB and CPMI revealed that this was not a simple problem, amenable to one or two quick solutions, but rather a complex set of interlocking frictions, both in the public and private sector, exacerbated by weak competition.
- From 2021 to 2023, the CPMI and FSB produced a number of reports, analysing the key frictions and the actions for the public and private sector, in partnership, that are necessary to alleviate them.
- While the data is not perfect and there are important gaps that need to be addressed, the BoE is now able to measure how far it has to go and also how to identify more precisely the areas for action that are likely to yield the greatest improvement.
- Since 2020, some countries have expanded access to their payments infrastructure to a wider range of financial institutions, or expanded their operating hours. Payment systems in more than 100 jurisdictions are already actively using the ISO 20022 messaging standard, which can carry far more information and so reduce payment failures. CPMI and the private sector have now developed harmonised data requirements for these cross-border payment messages, which will prevent fragmentation.
- However, as the monitoring report shows, the BoE is significantly short of the targets for 2027. In general, on the main targets, the BoE is between half and two thirds of the way there.
- The BoE envisages the Digital Pound as a partnership with the private sector – a so-called ‘platform model’. The BoE would provide the Digital Pound and the central infrastructure, including the ‘core ledger’. Private sector firms – which could be banks or approved non-bank firms – would provide the interface between the BoE’s central infrastructure and users by offering wallets and payment services.
- The BoE and HM Treasury consultation paper has stimulated a strong response, with over 50,000 completed responses. The responses fall into two broad categories. The majority express general, high-level concerns about three broad issues – privacy, programmability and the decline of cash. The second, smaller category of responses comprises detailed comments on the proposed platform model and some other key design features, including the limits that have been proposed at least for the Digital Pound’s introductory period.
- The BoE expects to publish a detailed response to the consultation in the coming months addressing both types of response.
- The BoE expects very soon to issue a Discussion Paper setting out its proposed regulatory regime for systemic retail payment systems using stablecoins.