Home Digital Currencies Bank of England and MIT team up for CBDC research

Bank of England and MIT team up for CBDC research

Bank of England: has joined the Bank of Canada and Boston Fed in collaborating with MIT Media Lab’s Digital Currency Initiative

The Bank of England (BoE) has become the latest major central bank to partner the Massachusetts Institute of Technology (MIT) as it further steps up its research into the technical aspects of central bank digital currency (CBDC) design.

The BoE is working with MIT Media Lab’s Digital Currency Initiative (DCI) team on a 12-month project to explore ‘potential technical challenges, trade-offs, opportunities and risks’ involved in designing a CBDC system.

The announcement of the BoE’s MIT partnership is almost identical in terms of both its wording and relative brevity to that made earlier this month by MIT DCI in announcing an apparently very similar 12-month collaboration with the Bank of Canada. MIT DCI is already 18 months into a multi-year CBDC partnership (dubbed ‘Project Hamilton’) with the Federal Reserve Bank of Boston.  

The BoE’s announcement states that they agreed to collaborate in February and that their work will ‘focus on exploration and experimentation of potential technology approaches’.

A decision has yet to be made on whether to introduce a CBDC in the UK – the same situation as in Canada, the US and indeed most major nations. As with MIT DCI’s Boston Fed and Bank of Canada partnerships, there is no aspiration to actually develop an operational CBDC.

CBDC consultation on its way

The BoE’s MIT link-up is announced with UK authorities preparing to launch – at some point during 2022 – a consultation into a potential digital pound.

The consultation will set out the authorities’ assessment of the case for UK CBDC, including the merits of further endeavours to develop an operational and technology model. Any development phase would run for ‘several’ years.

A UK CBDC – should it get the go-ahead – has been described as constituting a ‘major national infrastructure project’. The earliest issuance date would be in the ‘second half of the decade’ – so, after 2025.

HMT and the BoE announced a CBDC taskforce to ‘co-ordinate the exploration’ of a potential digital pound in April last year and the line-ups for two discussion groups – the ‘CBDC Engagement Forum’ and ‘CBDC Technology Forum’ – in September (the former comprises 32 people focused on policy considerations and functional requirements and the latter, which comprises 26 members, is considering issues including ledger design and data security).

Also last year the BoE published five ‘core principles’ forming the backbone of its CBDC explorations: that financial inclusion should be a prominent consideration in a potential CBDC’s design; that a ‘competitive CBDC ecosystem’ offers the best chance to deliver a CBDC’s benefits; that in assessing the case for CBDC, the BoE should assess whether non-CBDC payment innovations could deliver the same benefits; that a CBDC should seek to protect users’ privacy; and that while CBDC should ‘do no harm’ to the BoE’s ability to ensure monetary and financial stability, opportunities to meet its policy objectives more effectively should also be considered.

Limits need to be ‘coherent’

The BoE has just published responses to its ‘New Forms of Digital Money’ discussion paper (issued in June 2021), which, it says, showed ‘overall strong support’ for a CBDC.

The central bank received 2,539 responses (2,456 from individuals and 83 from organisations) to the paper, which set out the BoE’s thinking on so-called stablecoins, as well as CBDC, focusing on potential monetary policy and financial stability implications

The paper noted the potential need for limits to manage any transition from commercial bank deposits to new forms of money. It highlighted four possible ways in which limits could be structured: aggregate holdings; transaction limits on individual/daily transaction amounts; access eligibility; and remuneration (in this context, this means rates of interest:  ‘this could be tiered, for example, so that the interest paid on digital money balances above a threshold would decrease’).

Most organisations that responded, especially banks, agreed that temporary limits could be used to reduce outflows of retail deposits and to mitigate financial stability, according to the BoE’s summary of responses. Respondents noted that limits could potentially be relaxed over time, it adds.

‘The Bank has not taken a decision yet on the use of limits but it considers that should limits be needed, limits would need to be applied in a coherent way across all forms of digital money,’ the BoE states.

*** The widespread global adoption of CBDC is ‘highly probable’, with CBDC ‘set to come at scale’, according to ‘The (R)evolution of money III: CBDC is here, careful design needed now’, a 32-page analysis newly published by Accenture. The professional services company is engaged in CBDC projects with central banks including those of France, Sweden, Switzerland and South Africa.


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‘Digital pound’s potential benefits “overstated”, say UK Lords’our news story (24 January 2022) on ‘Central bank digital currencies: a solution in search of a problem?’, a report that concluded that there is ‘no convincing case’ for a digital pound

UK to consult on potential digital pound in 2022’ – our news story (15 Nov 2021) on UK authorities’ plans to launch a consultation

UK Treasury and Bank of England announce CBDC forum line-ups’ – our news story (30 Sept 2021) on the confirmation of the line-ups of its Engagement and Technology discussion groups (comprising 58 people in total)

‘Bank of England sets out five CBDC “core principles”’ – our news story (9 June 2021) on the BoE’s CBDC core principles

Prepare for ‘Britcoin’? Bank of England and HM Treasury launch CBDC taskforce’ – our news story (19 April 2021) on the BoE and HMT setting up a taskforce to co-ordinate their explorations (among other developments)