"Bank of England explores the future of money with the Digital Pound"
The Bank of England has released a report discussing the potential development of a UK central bank digital currency (CBDC), also known as a digital pound. The report outlines the Bank's current thinking on CBDC technology and seeks feedback on the potential approach to important technology considerations. The Bank has 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.
The report explores six technology design considerations that guide the Bank's current thinking on the technology requirements for a UK CBDC: privacy, security, resilience, performance, extensibility, and energy usage. Each consideration is discussed in detail, with a focus on how to achieve the desired outcome while balancing the potential trade-offs with other considerations.
The Bank has outlined the platform model as the preferred model for offering a UK CBDC. In this model, the Bank hosts the core ledger and an application programming interface (API) layer, allowing private sector firms to access 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.
The report also includes an illustrative conceptual model of a potential CBDC architecture, based on the platform model. The model includes a number of different components, including the core ledger, analytics, alias service, and API layer, outlining how these components might operate and assesses some of the ways that ecosystem participants – the Bank, PIPs, ESIPs, and users – would interact with these components.
The report is part of the research and exploration phase of CBDC development, and marks the start of the design phase. The Bank will conduct experimentation in the design phase, which will inform an evaluation of the technology feasibility of CBDC and help to determine the optimal design and technology architecture. The Bank's thinking on these matters will evolve as their work accelerates.