Bank of England Completes Retail CBDC Study

The Bank of England (BoE) and the Bank for International Settlements (BIS) have completed a year-long study into retail central bank digital currency (CBDC) payments.

Dubbed “Project Rosalind,” the investigation explored how a universal and extensible application programming interface (API) layer could connect central bank and private sector infrastructures to facilitate retail CBDC payments.

Bank of England Considers Retail Digital Pound

Project Rosalind identifies key design considerations for a potential future digital pound.

Significantly, it explored retail use cases for CBDCs. This aspect is important as, so far, the case for a retail CBDC has failed to gain significant support from policymakers in the U.K. Instead, the emphasis has been on wholesale CBDCs. These would only be available for high-value transactions between banks and large businesses but not the general public.

For example, in April, Sir Jon Cunliffe, the Bank of England’s Deputy Governor for Financial Stability, said that the first use case of any digital pound would likely be wholesale. 

But in one of the BoE’s most significant explorations of a retail CBDC to date, Project Rosalind considered peer-to-peer transfers, retail payments for goods and services, and small-value business transactions.

Elsewhere, other countries are in various stages of their own retail CBDC investigations and pilots. For example, this week, the central bank of Thailand began testing “digital baht” retail payments with a small group of consumers and businesses.

UK Policymakers Split on the Value of CBDCs

Despite enthusiasm from some key officials at the Bank of England, there is no broad consensus on the need for a digital pound. The BoE’s role is to consider the implications of introducing the new technology and explore different design options. But the ultimate decision will be down to parliament. 

Last year, the House of Lords Economic Affairs Committee published a report: “Central bank digital currencies: a solution in search of a problem?”

As the title suggests, the report is skeptical that there is any real need for a digital pound. And it calls into question the advantages of CBDCs over the U.K.’s current payment and settlement systems.

Yet although there is hesitancy in parliament, Cunliffe said that the U.K. was “likely” to need a CBDC this week. He even put the odds of the digital pound going ahead at seven out of 10. However, he insisted that any move to introduce a new digital currency was still years away.

CBDC Opposition Builds 

In its report, the House of Lords also identified risks posed by CBDCs. These include state surveillance of people’s spending, financial instability, an increase in central bank power without sufficient scrutiny, and a centralized point of failure for the U.K.’s payment system.

Similar concerns have also been flagged elsewhere.

For example, in direct opposition to the Biden administration, Florida became the first U.S. state to pass anti-CBDC legislation in May. Opposition to the technology is also gaining momentum in Canada.