For many years, the UK has boasted one of the world’s most advanced payment infrastructures, and has been a leading centre of financial innovation. But times – and, perhaps more relevantly, technologies – change. And one of these recent changes could seriously weaken not only the UK’s leadership position, but its ability to compete effectively on the global financial stage.
We’re talking of course, about the move towards digital assets and central bank digital currencies. And to see why this represents a threat to the UK’s global and domestic financial performance, consider some statistics. According to PwC, for example, more than 60 central banks have been exploring CBDCs since 2014*, and the number is increasing, while recent research from the Bank of International Settlements recently found that some 80% of the central banks surveyed were engaged in research, experimentation or development of a CBDC**. Clearly, the global financial trend is toward a digital asset future. And it is a trend which will surprise no-one who is familiar with the many benefits of digital currencies: benefits that include greater trust, increased privacy, improved transparency, more innovation, higher flexibility and wider financial inclusivity. Unless the UK develops a sovereign digital currency that is able to participate fully and actively in digital ecosystems, it will not see these benefits, and is unlikely to achieve the same standard of economic social and political growth as other nation states.
But, while the benefits of a digital currency may be huge, the challenges – technical, social and regulatory – are also very significant. And the question of how these challenges can best be met is critical to every country engaged with a CBDC roadmap. The Bank of England is fully aware of this, and has recently published discussion and consultation papers on the subjects of both a retail and wholesale CBDC. It is also part of a new group, created by the BIS and consisting of several other central banks, with a mission to share experiences in assessing the potential cases for a CBDC in their home jurisdictions, considering economic, functional and technical design choices.
Although the Bank of England holds the central role in designing and implementing a digital Pound (d-GBP), it is supported by the Digital Pound Foundation, which has a mission to assist policy makers in the creation of a well-designed Digital Pound (d-GBP) by bringing a broad spectrum of expertise and experience, producing exploratory pilot programmes, and providing technical insights. Initially conceived by members of the Whitechapel Think Tank, the DPF aims to create an inclusive and effective collaboration that fully examines the implementation of a d-GBP, and addresses not only questions such as the design, implementation and successful adoption of CBDC, but which also considers the wider impact of a digital Pound on the UK’s economy and society. The Initiative will also address, campaign for and provide constructive input in other key areas, such as privacy, financial inclusion and technology inclusion, and will consider the role to be played by a d-GBP in both enabling the UK’s transition to a digital economy and underpinning more efficient, sustainable payments.
We’re delighted to be supporting the DPF initiative. As a pioneer in distributed ledger technology, Quant’s experience of working with banks, inter-governmental organisations and private industry positions the company perfectly to contribute to the realisation of the Initiative’s vision. In particular, Quant is collaborating with the DPF to deliver interoperability: the ability to interoperate with the existing and emerging global payments infrastructure, as well as traditional means of payment (including cash and electronic money). Meeting this challenge is key to the success of a UK CBDC – or, indeed, any CBDC. However, a practical way of meeting this challenge has, until quite recently, evaded the industry. This is where Quant’s breakthrough technology is proving critical. The first and only solution to deliver true universal DLT interoperability, Overledger seamlessly interconnects private and public networks, enterprise platforms and DLTs, easily and securely at scale, without introducing complexity or additional infrastructure. By deploying Overledger, a CBDC such as the d-GBP can interoperate on a number of underlying DLTs and be used in cross-border applications, regardless of the DLT infrastructure. Already used in national and institutional infrastructure, Overledger enables any commercial bank or financial institution to integrate their core banking systems to all new networks of digital assets and CBDCs.
Quant supports the DPF’s conviction that a digital Pound will be the first step in creating a foundational digital infrastructure that will underpin the next generation of the UK’s economy and society. The DPF, with the help of member organisations, such as Quant, who can provide valuable technology, experience and insights, will help to ensure the goal of establishing a d-GBP is reached as soon as possible, and with appropriate, collaborative guidance, oversight and direction.
For more information visit the Digital Pound Foundation.
*PwC CBDC global index, April 2021
**BIS Working Papers , No 880, August 2020