BoE Tests Stablecoin-Central Bank Money Combo for Faster SME Payments

The Bank of England is testing a new trade-finance model that combines private stablecoins and central bank money to facilitate faster payment for small and medium-sized enterprises (SMEs). The experiment, part of the Digital Pound Lab's Phase 2, involves using stablecoins for export advances and digital pounds for import settlement.

The model is designed to address a key challenge in trade finance: verifying the existence and creditworthiness of SMEs. Currently, lenders spend days checking the business, its documents, and the underlying transaction, which can delay payment even if the money is transferred quickly.

The Digital Pound Lab's solution involves using electronic bills of lading and reusable KYC/KYB data to automate verification and reduce processing times from days to hours. The system also allows assets on a programmable layer to be exchanged against digital pounds without moving the pounds themselves onto a blockchain.