The Bank of England (BoE) is looking to bring in external expertise to develop a central bank digital currency (CBDC) digital wallet proof-of-concept as it looks to ‘make the CBDC product more tangible’.
A decision has yet to be made on whether to introduce a CBDC in the UK but the central bank, like many similar authorities worldwide, has a growing number of team members focused on exploring the feasibility and operational considerations for what has been described as a ‘major national infrastructure project’.
A supplier opportunity has been published on the UK government’s ‘Digital Marketplace’, used by public-sector buyers to find technology or people to deliver digitally-focused projects, for a ‘CBDC Sample Wallet Proof of Concept and Research’. It is the second such CBDC-related opportunity published by the BoE in the past couple of months after a similar online notice was posted in October seeking a supplier to develop at least one proof-of-concept for offline payments in a CBDC.
While the BoE will not develop a user wallet itself, the central bank may develop payment scheme rules and user experience guidelines for private-sector wallet providers, in addition to supporting core CBDC functionality via its ledger and application programming interface (API), the notice points out.
The aims of the project include ‘making the CBDC product more tangible for internal and external stakeholders, for example as a prototype for future user testing’ and ‘exploring the end-to-end user journey as a way to sharpen functional requirements for both the BoE and private sector’.
Project Rosalind API link-up
The new opportunity is similar to the offline payments project in terms of both budget – £200,000 (about $248,000), compared to £200,000-£250,000 – and also project duration of five months, with an option to extend by one month (compared to five months for the offline payments project).
The project notice specifies that ‘key deliverables’ are the production of a wallet mobile app (built on android as well as Apple’s mobile operating system iOS); a wallet website; an example merchant website; and back-end server to serve mobile app and website, ‘call’ the core ledger API and store user data and transaction history.
As with the offline payments proof-of-concept, reference is also made to ‘Project Rosalind’. This is a project being led by the BoE-hosted Bank for International Settlements (BIS) Innovation Hub’s London office that aims to build a prototype of an open API to enable a central bank ledger to interact with private-sector service providers to safely distribute and settle retail CBDC payments (retail CBDCs are designed to be available to the general population, whereas their digital currency siblings – wholesale CBDCs – are for inter-bank use). The digital wallet proof-of-concept will, the notice states, support the BoE’s Project Rosalind work ‘by testing integration of a front-end with the Rosalind API.’
The notice also states that the project should aim to ‘support future exploration of further functionality that is out of scope here, for example offline payments or KYC [know-your-customer] processes for new users.’ It is also specified that the proof-of-concept will need to have the ability to handle payments ‘via account ID or QR code’ as well as ‘programmatic/API payment (saved address)’.
The BoE expects to evaluate five potential suppliers (two more than with the offline payments opportunity). Applications will be evaluated largely on ‘technical competence’ (75 per cent), with price also a factor (20 per cent), as well as ‘cultural fit’ (five per cent). The closing date for applications is 23 December. The latest project start date is 16 January 2023.
Long-awaited consultation on way
The BoE’s CBDC progress comes as authorities ready a long-awaited consultation on a potential digital pound.
UK chancellor Jeremy Hunt said last week that the authorities would be ‘bringing forward a consultation in the coming weeks to explore the case for a central bank digital currency – a sovereign digital pound – and consult on a potential design’.
The consultation was promised more than 12 months ago. In a written ministerial statement on 9 November 2021, then-economic secretary to the Treasury (now chief secretary to the Treasury) John Glen described exploring the opportunities that a CBDC could offer as ‘aligning with the government’s wider agenda to remain at the forefront of innovation and technology in financial services’ and stated that the authorities ‘will publish a consultation in 2022 setting out their assessment of the case for a UK CBDC, including the merits of further work to develop an operational and technology model for a UK CBDC.’
Hunt also said last week that the BoE will be releasing a ‘technology working paper’ setting out ‘cutting-edge technology considerations informing the potential build of a digital pound’. Further commitments presented by Hunt (as part of a high-profile package of financial services announcements that the government collectively badged as the ‘Edinburgh Reforms’) include implementing a financial market infrastructure sandbox in 2023.
A potential UK CBDC was dubbed ‘Britcoin’ in a tweet by then-chancellor (now prime minister) Rishi Sunak in April 2021.
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‘Bank of England focuses on offline payments in CBDC proof-of-concept’ – our news story (21 October 2022) on the BoE looking to bring in external expertise for a project exploring what it described as the ‘complicated’ possibilities and challenges of offline CBDC payments
‘BIS Innovation Hub London head outlines centre’s first two projects’ – our news story (29 March 2022) on the inaugural head of the BIS Innovation Hub’s London office, Francesca Hopwood Road, presenting details of the centre’s first two projects (including Project Rosalind)
‘Bank of England and MIT team up for CBDC research’ – our news story (31 March 2022) on the BoE starting work with MIT Media Lab’s Digital Currency Initiative team on a 12-month CBDC project
‘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