When the Bank of England issued a discussion paper on central bank digital currencies (CBDC) in 2020, it outlined a so-called platform model. This is a centralized solution in which the Bank would operate a payment ledger that records all transactions, with payment service providers (PSPs) taking on the customer-facing distribution role for the digital pound.
Yesterday the minutes of September’s first Technology Forum meeting were shared, including two potential alternative models. Instead of the bank holding a record of every payment amount, it might just record the gross transactions with PSPs in a ‘pooled model’. And there could be a variant of the pooled model to allow delayed net settlement by the PSPs, even though customer payments would be real-time.
Some of the meeting attendees suggested an alternative model which is anonymous and hence more cash-like without either the PSPs or the Bank keeping a ledger. We recently wrote about a paper along these lines published by the Swiss National Bank.
Other forum members questioned the feasibility of a ledger-less solution and its ability to prevent double spending. Off-line payments represent a challenge for most digital currencies. And the Bank noted that off-line payments would be discussed later as a separate topic.
The suggestion of a cash-like token raises the issue of anonymity versus privacy. The Bank of England noted in its slide that “Privacy is of critical importance, but this is not the same as anonymity.”
It was also made clear that the Technology Forum is only intended to canvas external views and potential CBDC technology challenges. It’s not a democracy, so the central bank will make the decisions and the Forum is not considered to have a formal consultative role.
The Forum members are drawn from various firms, including many payment incumbents such as Visa, Mastercard, PayPal and Stripe, and online retailers including Spotify and ASOS. Blockchain representatives included R3, ConsenSys and SETL, although the central bank said no decision has been made about using DLT.