The Bank of England (BoE) and the Bank for International Settlements (BIS) have recently concluded a comprehensive year-long study known as “Project Rosalind.” This investigation delved into the possibilities of retail central bank digital currency (CBDC) payments, focusing on the development of a universal and adaptable application programming interface (API) layer. The primary objective was to establish a connection between central bank and private sector infrastructures, thereby facilitating retail CBDC payments.
Exploring Retail Use Cases:
Project Rosalind placed significant emphasis on retail use cases for CBDCs, an area that has thus far struggled to garner substantial support from policymakers in the United Kingdom. The primary focus has been on wholesale CBDCs, which are limited to high-value transactions between banks and large businesses, excluding the general public. However, Project Rosalind delved into peer-to-peer transfers, retail payments for goods and services, and small-value business transactions—a noteworthy exploration of a retail CBDC by the Bank of England.
Global Retail CBDC Investigations:
Various countries around the world are currently in different stages of their own retail CBDC investigations and pilot programs. For instance, the central bank of Thailand recently commenced testing “digital baht” retail payments with a small group of consumers and businesses. These international efforts highlight the growing interest and recognition of the potential benefits of retail CBDCs in modern financial ecosystems.
Divided Views on CBDCs among UK Policymakers:
While some key officials at the Bank of England express enthusiasm for the digital pound, there remains no unanimous consensus on the necessity of a CBDC among UK policymakers. The role of the BoE is to evaluate the implications of introducing this new technology and explore various design options, but the ultimate decision rests with the parliament. Last year, the House of Lords Economic Affairs Committee published a report entitled “Central bank digital currencies: a solution in search of a problem?” expressing skepticism about the need for a digital pound. The advantages of CBDCs over the UK’s current payment and settlement systems were also called into question in the report.
Opposition and Identified Risks:
Concerns and risks associated with CBDCs have been raised by critics. The House of Lords report highlighted potential risks such as increased state surveillance of spending, financial instability, a concentration of central bank power without sufficient oversight, and the possibility of a centralized point of failure for the UK’s payment system. Similar opposition to CBDCs has emerged internationally. In May, Florida became the first U.S. state to pass anti-CBDC legislation, directly opposing the stance of the Biden administration. Furthermore, resistance to the technology is growing in Canada as well.
Conclusion:
The completion of Project Rosalind marks a significant milestone in the Bank of England’s exploration of retail central bank digital currency payments. While there is no widespread consensus on the necessity of a digital pound among UK policymakers, the investigation into retail CBDC use cases demonstrates a shift in focus towards broader accessibility and inclusivity. As other countries embark on their own retail CBDC initiatives, the global landscape of digital currencies continues to evolve, with both proponents and skeptics engaging in vigorous debate on the potential benefits and risks associated with this emerging financial technology.
