Bank of England calls for comments on conceptual “platform” model for CBDC

A Bank of England paper considers the question: as the issuer of the safest and most trusted form of money in the economy, should the central bank innovate to provide the public with electronic money — or Central Bank Digital Currency (CBDC) — as a complement to physical banknotes?

CBDC would be an innovation in both the form of money provided to the public and the payments infrastructure on which payments can be made. At the moment, the public can only hold money issued by the central bank in the form of banknotes. Only commercial banks and certain financial institutions can hold electronic central bank money, in the form of reserves held in the BoE’s Real Time Gross Settlement (RTGS) service.

Unlike banknotes, CBDC would be electronic, and unlike reserves, CBDC would be available to households and businesses. CBDC would therefore allow households and businesses to directly make payments and store value using an electronic form of central bank money. For this reason, CBDC is sometimes thought of as equivalent to a digital banknote, although in practice it may have other features depending on its final design.

Any CBDC would be introduced alongside — rather than replacing — cash and commercial bank deposits. The Bank of England has not yet made a decision on whether to introduce CBDC, and intends to engage widely on the benefits, risks and practicalities of doing so. This discussion paper is part of that process.

CBDC could introduce important policy challenges and risks that need to be carefully considered and managed. If significant deposit balances are moved from commercial banks into CBDC, it could have implications for the balance sheets of commercial banks and the BoE, the amount of credit provided by banks to the wider economy, and how the central bank implements monetary policy and supports financial stability. Nonetheless, CBDC can be designed in ways that would help mitigate these risks.

This paper outlines an illustrative “platform” model of CBDC designed to enable households and businesses to make payments and store value. In the platform model, the Bank of England would provide a technology infrastructure, which would sit alongside the Bank’s RTGS service, and provide the minimum necessary functionality for CBDC payments. This could serve as the platform to which private sector Payment Interface Providers would connect in order to provide customer-facing CBDC payment services.

Read the full paper

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