The Bank has actively engaged stakeholders through multiple forums to gather insights shaping the design phase of the Central Bank Digital Currency (CBDC).
By Bena Ilyas
Edited by Marco T. Lanz
Updated
4 mins read
The Bank of England (BoE) plans to launch the Digital Pound Lab later this year as part of the design phase for a potential central bank digital currency (CBDC), according to the BoE’s Progress Update on Jan. 14. In collaboration with HM Treasury (HMT), the bank seeks to establish a framework for the digital pound, subject to parliamentary approval and primary legislation before implementation.
The lab will operate as a sandbox for real-world testing of CBDC APIs and exploring advanced payment models. A BoE report highlights its aim to involve private sector participants and drive technological and functional progress. The BoE Governor underlined the value of ongoing experiments and proofs of concept in strengthening UK payment systems and technological sectors.
“Ongoing experiments and proofs of concept during the design phase will continue to add value to the wider UK payments and technology sectors. The ‘Digital Pound Lab’ in particular will provide a platform for functional and technological experimentation with a broad range of private sector partners,” the report said.
Extensive public engagement, including surveys and focus groups, has identified challenges in current payment systems. Insights from these efforts will shape the lab’s initiatives to address operational shortcomings and create practical solutions.
The lab plans to evaluate specific use cases by analyzing technological and operational feasibility. Insights from experiments will guide the creation of a potential digital pound blueprint. The framework will examine costs, benefits, and distinctions from existing digital payment methods.
Consultation mechanisms have undergone notable updates. Forums like the Academic Advisory Group will continue, but the Technology Forum has been discontinued. Discussions will now focus on targeted insights from the Digital Pound Lab. The Bank of England remains committed to stakeholder engagement, working closely with banks, fintechs, merchants, and charities during the design phase.
Efforts to integrate advanced technologies have shown promising results. In collaboration with the Bank for International Settlements, the BoE developed APIs through Project Rosalind for retail CBDC functions. Tests on over 30 use cases highlighted improved user experience and efficiency for individuals and businesses.
The Labour Party has endorsed the digital pound, emphasizing the importance of a state-backed CBDC to safeguard the UK’s financial sovereignty. Its manifesto underscored this objective, while Emma Reynolds, economic secretary to the Treasury, reaffirmed the stance by addressing privacy, financial inclusion, and economic stability as key design priorities.
BoE has advanced privacy research in collaboration with the Massachusetts Institute of Technology (MIT). A joint study examined privacy-enhancing technologies (PETs) such as pseudonymization and zero-knowledge proofs, aiming to ensure the digital pound offers privacy comparable to or exceeding current digital money. Despite progress, regulatory and technical hurdles require further analysis.
The Bank has actively engaged stakeholders to design the phase of the Central Bank Digital Currency. The CBDC Engagement Forum, supported by working groups focused on offline payments, retailer requirements, and privacy, has contributed essential perspectives. These contributions have significantly influenced the ongoing development process.
Meanwhile, the CBDC Technology Forum has hosted comprehensive discussions on privacy, core ledger technology, interaction models, and platform requirements for fostering innovation. Outcomes from these sessions have inspired new experiments, including the Digital Pound Lab initiative.
Additionally, the CBDC Academic Advisory Group has provided valuable analysis of the interplay between retail public money, the digital pound, financial systems, monetary frameworks, and societal considerations such as privacy.
The bank plans to release design notes detailing its developing perspective on various elements of a digital pound. The design notes aim to foster preliminary discussions with stakeholders by sharing the Bank’s foundational views on specific aspects. The initial publication, the blueprint framework, accompanies this progress update.
These documents contribute to a thorough evaluation of the potential for a digital pound, addressing previously outlined considerations. To advance this assessment, the Bank will collaborate with external stakeholders and technical experts, refining its analysis and strengthening the evidence base.
Additionally, the Bank will monitor evolving trends in payment systems, private sector innovations, cash usage, advancements in UK payment infrastructure, and relevant global developments. These initiatives ensure a meticulous evaluation, laying the groundwork for an informed decision on the digital pound’s future.
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With over 3 years of crypto writing experience, Bena strives to make crypto, blockchain, Web3, and fintech accessible to all. Beyond cryptocurrencies, Bena also enjoys reading books in her spare time.
