T Skevington and M Bacina
Bank of England releases a Central Bank Digital Currency discussion paper
The Bank of England has published a discussion paper considering a central bank digital currency (CBDC) for the UK, intended to be part of the Bank's engagement on the benefits, risks and practicalities of introducing a CBDC.
The Discussion Paper is riddled with disclaimers, and the Bank is at pains to emphasise that "The Bank has not yet made a decision on whether to introduce CBDC".
Interestingly, the Discussion Paper goes so far as to question the usefulness of a DLT in a CBDC, saying that:
While we do not presume CBDC must be built using DLT (and there is no reason CBDC could not be built using centralised technology), some of the individual component innovations of DLT may be useful when applied to CBDC...
The body of the Discussion Paper is taken up by an exploration of the opportunities for the Bank to achieve its existing monetary policy and market integrity objectives, and consideration of the objectives, design principles, policy challenges and risks that would need to be considered and managed to support the introduction of a CBDC.
The Discussion Paper also considers an illustrative model of a UK CBDC designed to store value and enable retail payments in the UK, taking into account regulatory frameworks for anti-money laundering, counter-terrorism financing and privacy. Interestingly, the illustrative model draws specific comparisons to the Australian New Payments Platform (NPP), which the Reserve Bank of Australia has referred to as a reason why Australia does not need a retail CBDC.
The illustrative model is described in Figure 4.1 of the Discussion Paper, shown below:
Like the Bank for International Settlements' recent report the remainder of the Discussion Paper considers the necessary technology and design choices needed for a CBDC.
The Discussion Paper suggests that the Bank of England's motivation for considering CBDC's more closely is the changing nature of money and payments. As the Bank for International Settlements have commented, and other central banks have found, traditional centrally issued fiat currency is continuing to see declining use. There is nothing to suggest that this trend will be reversed any time soon.
Not to mention, according to the Bank for International Settlements, everyone else is doing it.
This discussion paper suggests that investment in blockchain technology is becoming more of a priority in the UK, and follows blockchain being identified in the UK's Department for International Trade agenda for negotiation of a Free Trade Agreement (FTA) with the United States, which specifically highlighted the blockchain industry as a potential beneficiary of a FTA.
A summary of the Discussion Paper is available on the Bank of England's website.