Designing interoperability for a potential UK CBDC

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Original Source: UK Finance

The Bank of England (the Bank) and HM Treasury are currently considering whether the introduction of a UK retail central bank digital currency (CBDC) would be beneficial for the UK economy and the continued integrity of pound sterling in light of increasing use of digital money. This decision could have a significant impact on the way that the UK’s financial markets operate and the ways in which consumers
and businesses make payments on a day-to-day basis.

While the Bank has not yet made a decision on whether to introduce a UK retail CBDC, it has proposed that the launch of a UK retail CBDC would be done in collaboration with the private sector. In light of this, UK Finance and its members considered how the private sector might be mobilised to contribute to the collective challenge that is faced by industry and regulators in considering this important and strategic decision for the UK’s financial ecosystem. As a result of this, we have worked with members throughout the first half of 2022 to understand how some of the key technical hurdles could be overcome by the market. Our members identified with us three areas that required particular investigation:

  • The level of interoperability between a CBDC and other forms of money
  • The potential commercial considerations of private firms offering CBDC services
  • The impact of CBDC implementation on credit creation for the UK economy.

This paper is one of three reports developed with UK Finance members that helps to discuss the potential impacts of the issuance of a UK CBDC and reflects a synthesis of thought from our members, associates and other stakeholders. We encourage you to read the other reports in this series as they cover complementary implications of CBDC issuance for the UK economy.

UK Finance and its members remain in full support of the consideration by the Bank and HM Treasury of all work investigating the potential development of a CBDC for the UK market. The Bank and HM Treasury are currently considering the practical challenges of implementing and operating a UK retail CBDC, including the roles of the public and private sectors ahead of the proposed consultation in 2022 to help assess the case for a UK retail CBDC.

We firmly believe that this development process is a vital opportunity to cement the ability for public and private bodies to work collaboratively and openly to understand the technical concerns, operational benefits and public policy objectives that are all essential to answer through the development of a UK CBDC proposal. A CBDC could deliver to the UK a step change in the way that businesses and consumers use financial services and break off the boundaries imposed by legacy infrastructure while ushering in a new generation of innovation for the ecosystem. It is essential that both public and private bodies work together to ensure the potential of a CBDC can deliver these benefits.

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