On Tuesday, the finance ministry in Britain disclosed that they intend to become a global ‘crypto hub’. Therefore, in order to achieve this goal, they will start live testing of the blockchain technology that powers cryptocurrencies for conducting activities in the traditional markets from next year. This includes settlement of bonds and stocks and even trading activities. The financial services’ director-general, Gwyneth Nurse stated that since they want to make the infrastructure of financial markets efficient and innovative for users, they have to utilize the distributed ledger technology (DLT), which is the underlying technology of crypto assets.
Next year, Britain intends to introduce a ‘sandbox’ for a financial market infrastructure in the coming year, which will test the DLT projects under the supervision of the regulatory authorities. According to Nurse, this is a model that had been introduced by UK regulators for promoting and developing fintech companies. The purpose of a sandbox is to provide projects a testing environment that uses real customers. There are three different stages that have to be completed in the trading of bonds, stocks and other traditional financial instruments in the financial markets. These stages are trading, then clearing and finally comes settlement.
The nurse stated that they could change this process with the use of DLT and it would enable them to issue financial assets, such as stocks and bonds, in a matter of hours rather than taking days or weeks. Speaking in London at the IDX derivatives conference, Nurse stated that the government may also want to figure out how the process of trading and settlement could also be coordinated together. They would be able to take advantage of the sandbox for testing new regulatory practices and this will help them in making permanent changes for delivering benefits to the market users.
They will introduce the said sandbox this year before the parliament in a new financial services bill. Moreover, the bill would also comprise of regulations relating to stablecoins, which are cryptocurrencies that are pegged to traditional financial assets like the US dollar. According to industry experts, the only way to take full advantage of blockchain technology in terms of market infrastructure is to have a digital currency. The Bank of England (BoE) and the finance ministry are working together to evaluate the possibility of introducing a digital pound.
It was further disclosed by Nurse that they would have a public consultation on this matter in the coming year. However, she further elaborated that they would not have a CBDC fully developed for a couple of years, even if they decide to go ahead with the project. Other central banks are also contemplating the idea of introducing a central bank digital currency (CBDC). The European Union is also working on developing new rules pertaining to the crypto space and a sandbox for the markets. Market experts said that significant progress had been made by the EU in this regard and it could make a big difference.