It is becoming increasingly difficult to keep up with all of the announcements from a raft of central banks and think tanks but here are some that caught my attention:
The minutes of the September meeting of the Bank of England’s CBDC Engagement Forum were released. Key discussion areas included:
A recognition of the importance of continuing to engage the public on the digital pound proposals, given concerns about consumer privacy, potential uses of programmable functions in a digital pound, and related developments in cash use.
A series of working groups were being set up. The first two would focus on offline payments and retailer needs.
HM Treasury set out high-level information on the building blocks of work expected in the design phase noting that the Bank and HMT were entering a “design phase” that will assess technical and operational considerations in more detail and inform the decision on whether the project moves into a build phase.
The Bank for International Settlements (BIS) released the final report on Project Tourbillon which explored privacy, security and scalability for CBDCs. It
Introduced a new privacy paradigm that balanced user needs and public policy objectives: payer anonymity. For example, a consumer who pays a merchant using CBDCs does not disclose personal information to anyone, including the merchant, banks and the central bank. However, the identity of the merchant is disclosed to the merchant’s bank (as part of the payment) but is kept confidential there. The central bank does not see any personal payment data but can monitor CBDC circulation at an aggregate level.
Showed that it is feasible to implement a design that provides payer anonymity - demonstrating that quantum-safe blind signatures, a cryptographic technique used to ensure anonymity, can be implemented. However, the implementation proved challenging. Quantum-safe cryptography exhibited slow performance and limited functionality, with throughput reduced by a factor of 200 compared to so-called classic cryptography, highlighting the need for further research and development.
Illustrated the trade-offs between privacy and security with one prototype providing unconditional payer anonymity and the other providing more resilient security features allowing for better protection against counterfeiting.
The BIS issued Part 4 of Project Polaris - a high-level design guide for offline payments with CBDC. The guide is based on information gathered in a series of deep-dive workshops conducted across May and September 2023 in collaboration with solution vendors and central banks which provided a greater understanding of the current solution landscape and the design choices central banks need to consider when thinking about offline payment capabilities. It noted that:
Providing offline payments with CBDC is an important requirement for many central banks. Some common motivations are supporting inclusion, offering cash-like features such as enhanced privacy, and increasing payment system resilience by providing an alternative option in the event of disruption.
Design choices must consider requirements for the whole solution. An offline payment solution cannot be designed in isolation and requires trade-offs between different requirements.
For offline payments with CBDC, central banks can be a driving force for collaboration and innovation. They need to understand their context, determine their objectives and use these to define their requirements. By taking a leading role, central banks can support solution vendors ensuring that solutions are based on their requirements, rather than on whatever technology is available. This should be an iterative conversation. Only with a clear set of requirements can a solution vendor meet the needs of central banks. At the same time, central banks need to form an understanding of existing technology options to see what is currently feasible and where gaps remain.
The UK’s Treasury Select Committee issued a report - The digital pound: still a solution in search of a problem? It raised a number of concerns but did recognise that:
“There are some potential benefits to the UK economy from a digital pound. A digital pound could help support innovation in domestic payments, while guarding against some of the risks posed by new forms of private digital money by maintaining public access to a form of central bank money. Innovation brought about by a digital pound could also support the UK’s international competitiveness in payments (and related) technologies, particularly if it is amongst the first major central banks to issue a retail CBDC. The extent of these benefits is unclear, however. Nor is it yet clear that a digital pound is the only (or best) means of achieving them.”
The European Central Bank decided to move to the preparation phase of the digital euro project following the conclusion of a two-year investigation phase on its design and distribution. This phase will lay the foundation for a potential digital euro, with work to include finalising the rulebook and selecting providers to develop platform and infrastructure and will pave the way be for a potential future decision on issuing a digital euro.
The design envisages the digital euro as a digital form of cash that could be used for all digital payments throughout the euro area. It would be widely accessible, free for basic use and available both online and offline. It would offer the highest level of privacy and allow users to settle payments instantly in central bank money. It could be used from person to person, at the point of sale, in e-commerce and in government transactions. No digital payment instrument offers all these features. The digital euro would fill that gap.
The PwC Global CBDC Index and Stablecoin Overview 2023 was released.
