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On 7 February, the Bank of England (the Bank)
and His Majesty's Treasury (HM Treasury)
jointly published a Consultation Paper on the development of a
Central Bank Digital Currency (CBDC) for the UK
(or a digital pound).
The three key takeaways in respect of a likely digital pound
- No final decision has been made on whether
there will be one, but the use case is sufficiently sound to
warrant a move from the current conceptual phase on to the
design and development phase.
- The final decision will be made at the end of
the design and development phase - likely
- The most likely approach will be public-private
partnership - with the Bank providing the digital pound
and the central infrastructure; and private sector companies (banks
or approved non-bank firms) providing the interface between the
Bank and end users via digital 'pass-through' wallets.
- The digital pound will be private but not
anonymous. The private sector banks providing the wallet
service will hold personal data on end users but the Bank and
government will not.
Alongside the Consultation Paper, the Bank published a Technology Working Paper which sets out the
Bank's initial thinking on the technological architecture and 6
design considerations (such as privacy, security, resilience,
energy usage, etc).
The consultation seeks feedback on the conceptual model and the
six technology design considerations and closes on 7 June
In a speech coinciding with the launch of the
consultation, the Deputy Governor for Financial Stability at the
Bank, Jon Cunliffe, distinguished the proposed CBDC from other
cryptoassets, stating that the "digital pound would be a
safe, trusted form of money accepted for everyday transactions by
households and firms, in the same way as Bank of England notes are
At a glance
|Will there be a UK CBDC?
- The decision whether to launch a UK CBDC will be made in the
coming years (likely 2025/2026) taking account of developments in
money and payments as well as the operational features and
technology needed to deliver a digital pound.
- The focus for the Bank at this stage is to step up the
technical development work and proof of concept.
- The Bank notes the declining use of cash, the increasing use of
'private money' (claims on private commercial banks in the
form of bank deposits) as well as blockchain currencies/payments
all pose a risk to monetary and financial stability and
fragmentation of access to money that the digital pound could
- The current proposal focuses on a retail digital
pound. The Bank is also exploring a wholesale
digital pound for high-value transactions between
financial institutions. Those payments are enabled by the
Bank's Clearing House Automated Payment System and its
Real-Time Gross Settlement (RTGS) service.
Respondents to the consultation are invited to give their views on
how a wholesale CBDC could be used to facilitate wholesale
payments, including as part of the RTGS renewal and the roadmap for
RTGS beyond 2024.
- Phase 1: The release of this Consultation
Paper and Technology Working Paper marks the end of the current
exploratory and research phase, which commenced
with the publication of the Bank's Discussion Paper in 2020.
- Phase 2: The design phase
will identify the architecture for any digital pound and involve
private sector innovators in experimentation and proofs of concept.
It will end in approx. 2025/26 with a decision on whether to
proceed to the build phase.
- Phase 3: The build phase
would start in 2025/2026 at the earliest (once the design phase is
completed). The digital pound would only be launched if the build
meets the government's exacting standards for security,
resilience and performance.
- Platform Model: The Bank would issue digital
pounds and host the core ledger and an application programming
interface (API). Transactions would be recorded in
a core ledger.
- Regulated private firms, Payment Interface Providers
(PIPs) and External Service Interface Providers
(ESIPs), would access the core ledger via the
- These regulated private sector firms (i.e. the PIPs and ESIPs)
would deal with all user-facing interactions, including providing
pass-through wallets. The private sector firms also undertake Know
Your Customer (KYC) and Anti-Money Laundering
(AML) checks and handle user data.
- Users will interact with digital pounds by using their
"wallet" with a PIP to see their balance and instruct
payments and transfers of digital pounds. It is likely that most
people would access the wallet via their smartphone, but there
would be alternative options such as a smart card.
- The digital pound will be denominated in Sterling and seamless
exchange with cash and bank deposits will be provided. Holding a
digital pound will be a direct claim on the Bank as with cash.
- Privacy: The digital pound will be private in
the sense that neither the government nor the Bank would have
access to users' personal data except in limited circumstances
(such as law enforcements-related needs in line with the current
position). However, the digital pound will not be anonymous because
the wallet providing PIPs or ESIPs will hold user information
(essentially like current bank accounts). These need the ability to
identify and verify users in line with financial crime
- Security: Managing security risk is critical
for the Bank. Cryptographic algorithms, secure access management,
layers of security controls etc are all likely to be deployed to
ensure a comprehensive security assurance programme.
- Resilience: Resilience to disruption is key.
The ambition is for 24/7/365 availability with a target uptime
(when the system is available and operational) of close to 100%.
The Bank is likely to rely on containment and redundancy mechanisms
to achieve resilience.
- Performance: The Bank estimates a performance
level of approx. 30,000 transactions per second may be the
necessary level of performance. As further use-cases develop, this
need could rise to 100,000 transactions per second. To achieve
this, the system will rely on techniques such as horizontal
scaling, multi-destinational payments and off-line payments
- Extensibility: The digital pound system will
need to allow for new functionality to be added without impairing
system functions. The Bank will consider open-source components and
- Energy Usage: The digital pound infrastructure
will also need to be energy efficient and designed in a way which
minimises any impact on the environment and assists with reaching
net zero by 2050.
|Illustrative conceptual model
- Core Ledger: The core ledger may be a
traditional centralised database or may employ Distributed Ledger
- Analytics: The Bank may need to collect
aggregate data to undertake economic and policy analysis; as well
as operational metadata for analysis of system status and
performance. Both sets of data will be anonymised held via a
separate data platform.
- Alias Service: An alias service would use
identifiers to route transactions between users and enable
interoperability with existing payment infrastructure. Aliases will
also conceal the wallet identifier.
- API Layer: The API layer would allow PIPs and
ESIPs to access core ledger functionality in order to offer
services to users.
- Devices and Payments: To be effective, the
digital pound will need to be widely adopted and available
in-store, online and peer-to-peer. Payments will be possible
through smart devices, smart cards, ecommerce websites and
applications, and existing point-of-sale technologies.
- Interoperability: Conversion between the
digital pound and other forms of money (like cash and bank
deposits) is essential. Existing payment infrastructure (e.g.
Faster Payments, LINK etc) may be deployed to achieve
- Programmability: Programmable functionality of
wallets will be possible with features such as automated payments,
delivery-versus-payment and smart contract functionality.
- Offline payments: Offline payments might be
available increasing system resilience in the event of network
disruption. However, the risk of double spend and challenges in
verifying the authenticity of funds will need to be managed
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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