Bank of England Tests DLT

In July 2025, the Bank of England (BoE) announced the DLT Innovation Challenge, marking a significant step in its exploration of digital finance. The initiative invites firms from the financial and technology sectors to demonstrate how central bank money could be transacted and settled on external distributed ledger technologies (DLTs). The program reflects the BoE’s intent to experiment with cutting-edge systems while maintaining its commitment to security and financial stability.

Technology and Infrastructure

The challenge focuses on testing real-world applications of DLT in a central bank context. Participating firms are tasked with building and showcasing solutions that demonstrate:

• Secure settlement of transactions using central bank money
• Integration of DLT platforms with existing payment infrastructures
• Operational resilience and transparency without compromising monetary control

Unlike private cryptocurrencies, these solutions must operate under the safeguards of regulated financial systems. The BoE seeks to understand how external DLTs could complement central bank operations, enabling greater efficiency and flexibility in future payment models.

Strategic Objectives

The DLT Innovation Challenge has three core objectives:

1. Exploring integration – assessing how central bank money could function on distributed ledgers managed outside the BoE’s direct infrastructure.
2. Supporting innovation – encouraging private-sector firms to co-develop new tools and approaches for secure settlement.
3. Preserving stability – ensuring that experiments with new technology do not undermine the safety and trust that underpin central bank money.

Through this initiative, the BoE is signalling a careful but forward-looking approach—seeking to capture the benefits of decentralisation while maintaining oversight and reliability.

Impact on Finance and Banking

The launch of this challenge is expected to have several impacts:

• For financial institutions, It opens the door for banks and fintechs to test practical DLT-based settlement models with the credibility of a central bank backing.
• For innovation ecosystems: By inviting a range of firms, the BoE fosters collaboration between traditional finance and emerging fintech players.
• For the broader economy: Exploring DLT integration could eventually reduce transaction costs, accelerate settlement, and provide more resilient systems for both domestic and cross-border payments.

If successful, the initiative could pave the way for central banks worldwide to embrace hybrid systems that merge traditional oversight with decentralized efficiency.