The Bank of England is in the process of rebuilding its Real Time Gross Settlement (RTGS) system to enable new non-bank payment service provider (PSP) systems and others using blockchain's distributed ledger technology (DLT), to easily plug into its system.
This was revealed in a speech titled "New Economy, New Finance, New Bank" delivered by the Central Bank's Governor Mark Carney at the annual Mansion House dinner.
In the speech, Carney said, "the Bank of England is in the midst of an ambitious rebuild of the Real Time Gross Settlement (RTGS) system - the backbone of every payment in the UK."
"The economy is reorganising into a series of distributed peer-to-peer connections across powerful networks - revolutionising how people consume, work and communicate," Carney added.
RTGS is a system generally used to transfer large volumes of funds between banks on a real time and gross basis. The system will now be redesigned to interface with DLT in future. RTGS is also being re-configured to lower the excessive costs of cross-border payments.
The bank will introduce an external facing Application Programming Interface (API) to facilitate better access to RTGS data for all participants.
The UKs central bank is also working to connect RTGS and the systems run by other central banks. It is just begun collaborating with the Bank of Canada, the Monetary Authority of Singapore and several private-sector firms to improve inter-bank cross-border payments, including initiatives based on DLT.
On an average day, RTGS settles around 500 billion British pounds between banks, around a quarter of the UK's annual GDP, in sterling central bank money.
At present, cross-border payments can cost ten times more than domestic ones. The bank estimates that in the UK alone there is scope to realize annual savings of more than 600 million pounds.
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