Bank of England continues digital currency research

By Rizwan Qayyum

A researcher at the Bank of England (“BoE”) recently explored the notion and technological requirements of a central bank issuing a digital currency (“CBDC”) and posited it may not be necessary to use distributed ledger technology (“DLT”) for the currency.

On the Bank Underground blog, the researcher explains that a CBDC would need to be resilient against various problems and have the capability to run on a continuous basis. Both DLT based systems and those that use alternative forms of tech were assessed. The key technological requirements identified include:

• Resilience – a requirement for “high operational availability” was put forward, particularly if the CBDC was widely used and thus “considered critical national infrastructure” needing to be “operational across the country, 24 hours a day, 365 days a year”
• Security – security risks against a growing trend of cyber-attacks would be of high importance. The blog notes “threats faced by a CBDC could be much greater than the threats faced by private digital currencies like Bitcoin”
• Scalability – the degree of operation for a CBDC depends on the volume of transactions and the number of users, with a “reasonable estimate of a peak figure may be in the region of several thousand transactions per second” expected
• Transaction Processing – for practicality with retail payments, CBDC transactions would require real-time gross settlement
• Confidentiality – transactions must be private but not anonymous to comply with global anti-money laundering obligations
• Interoperability – A CBDC would need to coexist with the current financial system, as well as potentially with multiple other national CBDCs, depending on the scale and utilisation of other potential CBDCs
• Future proofing – the CBDC would need to be “fit for purpose” for a long period and likely will enable future innovation, which requires focus.

We would expect further, continued research to be conducted on the viability of a CBDC on a global basis, and will monitor developments.