The Central Bank of England published the digital pound Consulting paper on the policy objectives and high-level design for a UK CBDC. It evaluated the need for a CBDC and its implications for the Bank’s
objectives of monetary and financial stability, the proposed public-private partnership to provide a CBDC and the model of CBDC the Bank intends to examine further in the next stage of our work.
The paper also considered the technology implications of the Bank and HM Treasury’s policy objectives for a UK CBDC, and the economic and functional design choices set out in the digital pound CP, using the platform model of CBDC outlined in that paper.
There are numerous speculations that the Bank of England is a step closer to launching its digital currency after a yearlong project concluded the technology could support a “diverse range” of new ways to use money as reported.
Project Rosalind, a collaborative initiative between the Bank for International Settlements (BIS) Innovation Hub London Centre and the Bank of England, has successfully developed a prototype application programming interface (API) layer for retail central bank digital currency (CBDC) systems. This groundbreaking project aimed to explore the potential of connecting central bank and private sector infrastructures through a universal and extensible API layer, enabling seamless retail CBDC payments.
The Project examined different payment options. Retail CBDC payments were evaluated for online transactions, in-store purchases, and offline scenarios, utilizing technologies such as near-field communication, point-of-sale interactions, QR codes, mobile phones, smartcards, biometric devices, and smart assistants. The project also delved into private sector programmability and micropayments as part of the exploration.
The aim was to develop a universal and extensible API layer that could seamlessly connect central bank and private sector infrastructures. It was aimed to facilitate retail CBDC payments and foster innovation. The project embraced a two-tier CBDC model, where the central bank issues the CBDC and provides the underlying ledger infrastructure, while the private sector offers user-facing services.
Valuable insights were gained into essential aspects of a retail CBDC system. These included API design, privacy models, security measures, standards, offline payments, private sector programmability, and the roles and responsibilities within the ecosystem. The collaboration with central banks, academia, and the private sector played a vital role in delivering this ambitious undertaking.
As per the paper earlier published the model was built on the functional and economic design choices for CBDC, which are outlined in the digital pound CP. The Bank and His Majesty’s Treasury (HM Treasury) have identified two primary motivations for a UK CBDC, sustaining access to and promoting the usefulness of central bank money and promoting innovation, choice and efficiency in domestic payments. These motivations have informed the functional and economic design choices for CBDC, which are set out in the digital pound CP.
The platform model is currently the preferred model for offering a UK CBDC. In this model, the Bank hosts the core ledger and an application programming interface (API) layer. The API layer would allow private sector firms, known as Payment Interface Providers (PIPs) and External Service Interface Providers (ESIPs), access to the core ledger functionality to provide user services. Access to the core ledger would be subject to approval by the Bank, based on objective and transparent criteria, and subject to PIPs and ESIPs having appropriate regulatory status.
