The Bank of England @bankofengland just issued an excellent paper on retail Central Bank Digital Currencies and proposes a new form of money which would enable to make electronic payments using central bank money.
If you just have 1 minute, this is what you need to know:
If you just have 1 minute, this is what you need to know:
1. BofE proposes to issue a UK CBDC, a digital pound sterling and allow anyone to hold an electronic form of central bank money - similar to a digital banknote. This would be a risk-free asset as does not involve any counterparty risk to traditional banks.
2. The CBDC would be recorded as a liability on the BofE’s balance sheet (just like bank notes and reserves) and matched with assets held by the BofE.
3. The BofE acknowledges that some degree of disintermediation of commercial banks is an inevitable consequence of a successful CBDC.
4. The extent of the risk of the desintermrdiation depends on the design decisions of the CBDC (eg pays interest, different interest rate vs bank rate, limits to amounts held, etc)
5. One of the BofE’s goals is to “avoid the risks of new forms of private money creation”.
6. The platform provides for programable money via smart contracts. This enables not only IoT and micro payment solutions but potentially automating routing of tax payments as well as atomic swaps, PvP, DvP, etc
7. Platform will be permisioned based. Whilst DLT can be used to build the platform, BofE acknowledges that it can also be built on a centralized technology stack without using DLT.
8. BofE proposes a platform model that would sit next to the existing national RTGS systems. Private sector players can build overlay services and functionalities.
This is probably one of the the most thought through and game changing announcement from a G20 central bank so far. The BofE admits that this could impact the structure of the banking system and the balance sheet of the BofE and commercial banks.
For those who have been following CBDCs, I would argue that the UK proposal is a fusion of Sweden’s 2018 version (Report 2) of the e-Kronor proposal and the IMF’s 2019 synthetic CBCD proposal.
Link to full report here: bankofengland.co.uk/-/media/boe/fi…
#Bitcoin #Crypto #cryptocurrencies #blockchain #DLT #CBDC #Money
#Bitcoin #Crypto #cryptocurrencies #blockchain #DLT #CBDC #Money
