London June 16 2023: The Bank of England is a step closer to launching its own digital currency after a yearlong project concluded the technology could support a “diverse range” of new ways to use money.
Project Rosalind, undertaken by the UK institution and the Bank for International Settlements, kicked off last year to identify how a so-called central bank digital currency, or CBDC, would work in practice and what benefits it might bring.
The report from phase one of the experiment, published Friday by the BIS, found that a CBDC could make payments between individuals quicker and easier, enable firms to create new financial products and reduce fraud. It could allow for money “programmability” — for example, meaning that a payment to an online vendor would automatically settle when a buyer had verified that the products had been received satisfactorily.
The first set of findings from Project Rosalind add to the BOE’s case for launching its own CBDC, which has been dubbed “Britcoin.” While the Bank has said it’s “likely” that a CBDC will be needed in future, it will not decide whether to proceed with the technology until it has digested the responses to a consultation due to close at the end of June. It also requires the backing of the UK Treasury.
Gilbert Verdian, chief executive officer and founder of London-headquartered blockchain technology provider Quant which worked on the project, said the UK’s current money system “is not fit for purpose for a digital society.”
Project Rosalind
Quant has been developing a prototype retail CBDC since last year. The first phase of the project included eight participants from the world of banking and and big tech that have tested using Quant’s underlying blockchain infrastructure.
Mastercard created a CBDC debit card, Barclays Plc has been testing cash-on-delivery payments, meaning cash is released to a vendor once deliveries arrive in good condition, and Amazon UK experimented with checking out using CBDC. Bank of Canada created children’s accounts where a parent could deliver a “conditional payment”, which was “unlocked” when certain chores were completed.
UK fintech Revolut, BNY Mellon, and French payment company Worldline are also experimenting with the CBDC project.
Verdian said the biggest outcome of the project so far was the innovation of a multi-party lock payment, a system that enables the digital asset to be clamped so the vendor knows the payment is there and will arrive on time if the goods or services are delivered.
“Having this conditional logic and smart money allows us to have fraud prevention as opposed to fraud protection,” Verdian said, adding the new form of technology could make Britain the “epicenter of the next generation of financial systems.”
“There’s an opportunity for a digital pound to be one of the currencies that the world prefers because it has all this smart money logic built in a safe environment,” he said.
Before Project Rosalind, Verdian said “a lot of the thinking” around CBDCs had been “mainly theoretical and policy.”
CBDCs have already been launched in other countries, and Verdian acknowledged that many had experienced little success. The technology behind the Bahamas Sand Dollar wasn’t resilient enough, he said, meaning the currency was often offline. Nigeria’s foray into CBDC saw little uptake because consumers couldn’t see the benefit.
“We’re taking the time to do it properly,” Verdian said. “For the first time, the private sector gets a say in terms of what they want for the next generation of the financial system.”
Central banks across the world are exploring CBDCs, he added, comparing their efforts to an “arms race” to create the next reserve currency which could take over from the US dollar.
‘A solution without a problem’
The Bank of England has been criticized in some quarters for pursuing a CBDC without giving a detailed explination of the benefits. Former BOE Governor Lord Mervyn King called it a “solution without a problem.”
BOE Deputy Governor Jon Cunliffe, however, has compared CBDCs to Apple Inc.’s App Store. Before the creation of the iPhone, people could not imagine what they might be able to do with a smartphone — and understanding of CBDCs are now at that point.
While some CBDC critics also worry that the technology could give central banks and governments a worrying insight into citizens’ spending habits, Verdian said this was a misconception and that Project Rosalind proved privacy could be maintained.
“We believe that Rosalind can make a significant contribution to how organizations across the globe are thinking about and engaging with the design of retail CBDC systems,” said Francesca Hopwood Road, head of the BIS Innovation Hub London Centre.
