Private-sector activity in central bank digital currency (CBDC) development is cranking up in the UK in the form of initiatives backed by big names in technology and banking including IBM and Barclays.
IBM is among the members of the DFMI Consortium (whose name stands for Digital Financial Market Infrastructure), which is organising a trial exercise billed as the ‘UK’s first privately-led Digital Sterling (dSterling) pilot’.
Planned activity will ‘test high-potential use cases and provide empirical inputs to policymakers and regulators on future design considerations for CBDC development and stablecoin regulation’, according an announcement this week. The pilot is scheduled to launch in November and will run for 12-24 months. The consortium aspires subsequently to run private-sector CBDC pilots in ‘multiple jurisdictions across the world’.
Barclays, meanwhile, is organising ‘CBDC Hackathon 2022’, which will see participants ‘code solutions to a series of challenges that involve connecting to a Barclays simulation of both a central bank and commercial banks’.
A decision has yet to be made on whether to introduce a CBDC in the UK, putting the country in the same position as most major nations. A UK CBDC – should it get the go-ahead – has been described as constituting a ‘major national infrastructure project’. A consultation into a potential digital pound is expected later this year and the earliest issuance date would be in the ‘second half of the decade’ – so, after 2025.
Focus on ‘real-world testing’
The DFMI Consortium’s plans – badged ‘Project New Era’ – were first aired during a panel discussion at the Money20/20 conference in the Dutch city of Amsterdam in June (‘Introducing Project New Era, the UK’s first Digital Sterling pilot’ – 41min13sec).
The consortium is being co-ordinated by paywith.glass, which describes itself on its website as an ‘intellectual property stack’ of Netherlands-headquartered fintech infrastructure company Satellite Moving Devices Group (SMD Group). Boston Consulting Group (BCG) is consulting partner while ‘global advisers’ include London-headquartered Rosa & Roubini Associates (macroeconomic advisers) and Simmons & Simmons (legal). Other consortium members include the well-known fintech company Finastra.
Project New Era aims to ‘reimagine and test new payment rails for the global financial system’, focusing on ‘real-world testing to evaluate a future digital currency ecosystem, environment and economy that includes the co-existence of current forms of money, regulated digital assets (including crytocurrencies and stablecoins) and CBDCs, starting in the UK’, according to its announcement.
The currency, dSterling, will be a stablecoin asset. The backing of dSterling will be pounds held in a Bank of England (BoE) reserve account (and 100 per cent backed in this manner). So, even though it is not issued by the central bank, the UK pilot will be able to test use cases for a ‘CBDC-like’ asset, the consortium explains.
The BoE stated earlier this year that ‘a CBDC would itself be a liability of the central bank issued to retail users, which may be made available through private sector “payment interface providers”.’
The term ‘Digital Sterling’ (or ‘dSterling’) has not previously been widely used, with discussions to date in the UK about a potential CBDC typically preferring to use ‘digital pound’. One notable, though light-hearted, exception was then-chancellor Rishi Sunak’s tongue-in-cheek reference (by tweet) to ‘Britcoin’ last year.
World in midst of ‘financial revolution’
The Money 20/20 panel discussion, moderated by Lord Anthony St John, featured Paul Sisnett (SMD Group / paywith.glass), Kunal Jhanji (BCG), Brunello Rosa (Rosa & Roubini Associates) and Nicole Sandler (Barclays), as well as Dr Lisa Cameron MP (chair of the UK Parliament’s Crypto and Digital Assets All-Party Parliamentary Group).
“The world is undergoing a financial revolution from which there is no turning back,” said Jhanji, who is a managing director and partner at BCG, this week. “With the advent of DLT [distributed ledger technology] and blockchain technology, digital assets are ushering in a new era for money, with potentially transformative benefits for consumers, businesses, financial institutions and states. The industry needs to now come together to help the lawmakers and central banks shape the design and regulatory aspects of the biggest change we will see in the payments ecosystem in our lifetimes.”
The consortium arrives in an increasingly busy UK CBDC arena already occupied by the Digital Pound Foundation (DPF), which launched last year as an ‘independent forum to support the implementation of a well-designed digital pound and digital money ecosystem’. Billon Group, CGI, Clifford Chance, Electroneum and Ripple are listed on the DPF’s website as members while its chairman is Jeremy Wilson, a former vice-chairman of Barclays Corporate Banking.
The BoE itself has a growing CBDC unit, as well as – alongside HM Treasury – a CBDC taskforce, and CBDC engagement and technology forums (the latter forums involve the private sector). In addition, the BoE is working with MIT Media Lab’s Digital Currency Initiative (DCI) team to explore ‘potential technical challenges, trade-offs, opportunities and risks’ involved in designing a CBDC system.
Barclays rises to the challenge
The Barclays-organised competition will, the bank said in its announcement, ‘follow the Bank of England’s platform model for retail UK CBDC provision, comprising a central bank operating a core ledger and providing access via application programming interfaces (APIs) to authorised and regulated payment interface providers (PIPs) that provide users with access to CBDC’.
The hackathon will take place on 27-28 September at the bank’s fintech-focused ‘Rise London’ premises. Registration closes on 22 August. A panel of judges will assess the solutions and prizes will be awarded.
US-headquartered IBM is also involved in Barclays’ initiative, providing participants with access to and technical assistance on the Hyperledger Fabric platform. Other companies involved are Digital Asset, which will provide participants with access to and technical assistance on the DAML platform; and EY, which is an ‘independent observer’ and will publish a post-event report.
*** The Hong Kong Monetary Authority (HKMA) and Invest Hong Kong (InvestHK) have jointly announced the addition of a ‘CBDC track’ to its ‘Global Fast Track 2022’. The CBDC track invites banks, fintechs and tech firms to submit innovative solutions in eight focus areas: retail CBDC adoption, wholesale CBDC (wCBDC) adoption, programmable money, interoperability, privacy, cybersecurity, foreign exchange and liquidity management, and offline payments. Application for the CBDC track is open until mid-September.
The Global Government Fintech Lab (held in Estonia in 1 June 2022) featured a panel session titled ‘How can CBDCs help deliver public good?’. Watch the session in full (46min 36sec) =>
Source: Global Government Forum YouTube page
=>>> Global Government Fintech’s dedicated ‘Digital Currencies’ section <<<=
‘Bank of England and MIT team up for CBDC research’ – our news story (31 March 2022) on the BoE working with the Massachusetts Institute of Technology (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
‘Digital pound’s potential benefits ‘overstated’, say UK Lords’ – our news story (24 January 2022) on a House of Lords report describing the potential benefits of a British CBDC as ‘overstated or achievable through less risky alternatives’
‘UK to consult on potential digital pound in 2022’ – our news story (15 November 2021) on HM Treasury and the BoE announcing the planned CBDC consultation
‘Prepare for ‘Britcoin’? Bank of England and HM Treasury launch CBDC taskforce’ – our news story (19 April 2021) on the setting up of a BoE/HMT taskforce to ‘co-ordinate the exploration’ of a potential digital pound