The UK is still ‘some years’ away from making a final decision on whether a CBDC will be implemented, but it’s looking likely.
Project Rosalind, a major study exploring application programming interfaces (APIs) for retail central bank digital currencies (CBDC), has reached a positive conclusion, potentially bringing the UK one step closer to adopting its own CBDC.
Launched in July 2022 by the Bank for International Settlements (BIS) and the Bank of England (BoE), the study developed 33 API functionalities and explored more than 30 retail CBDC use cases such as peer-to-peer transfers and retail payments for goods and services.
A wide range of payment options were tested in the study, including making retail CBDC payments online, in stores and offline. The findings of study were generally positive.
Francesca Hopwood Road, Head of the BIS Innovation Hub London Centre, said that the experiment has “advanced central bank innovation in two key areas: by exploring how an API layer could support a retail CBDC system and how it could facilitate safe and secure CBDC payments through a range of different use cases.”
She added that the findings “can make a significant contribution to how organisations across the globe are thinking about and engaging with the design of retail CBDC systems.”
What is a CBDC?
A CBDC is a digital form of national currency that’s issued and regulated by a country’s central bank. It digitally represents a country’s fiat currency. In China, for instance, a CBDC known as e-CNY (a representation of the yuan) is already in use, and many government workers are now paid in the CBDC.
CBDCs are not the same as cryptocurrencies. Although they are similar in the sense that they both use distributed ledger technology, cryptocurrencies are decentralised, independent networks, while CBDCs are issued and owned by a central bank or government reserve.
There are some benefits to CBDCs, such as better visibility over money supply (leading to improved policy), as well as quicker, more efficient transactions. Privacy however remains a central concern – so much so that Florida Governor and 2024 Republican candidate Ron DeSantis banned CBDCs from the state of Florida, referring to them as “Big Brother’s Digital Dollar”.
Project Rosalind factored privacy into its study, outlining that “Participants in the system – from either the public or private sector – should only have access to the minimum amount of information for them to play their defined roles and perform their specified tasks.”
A UK CBDC is still ‘years’ away, but implementation is looking more and more likely.
Jon Cunliffe, Bank of England Deputy Governor, said last week that a final decision on whether the UK will launch a CBDC is still “some years” away, with other reports citing that a decision is expected by mid-decade. Cunliffe also predicts the odds of adoption stand at around “seven out of ten“, according to a report by Bloomberg.
Back in February, UK Finance Minister Jeremy Hunt said in a statement that cash is “here to stay”, but “a digital pound issued and backed by the Bank of England could be a new way to pay that’s trusted, accessible and easy to use.”
There are now more than 100 countries exploring CBDCs, with eleven countries already using them (The Bahamas and Jamaica, for example).
Some commentators have suggested that CBDCs are a means for governments to retain monetary sovereignty with the mammoth rise of cryptocurrencies.
Wolf-Georg Ringe, director of the Institute for Law & Economics at the University of Hamburg, recently wrote of MiCA’s origins: “Reading between the lines, the proposal shows the fear of losing monetary sovereignty to private actors, and it is no coincidence that a few days after the Commission’s proposal was published, the ECB [European Central Bank] launched its initiative for a digital Euro.”
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