UK to release CBDC consultation paper to establish a framework for growth and innovation in crypto assets and stablecoins

According to a report by The Block, the UK government and the Bank of England are set to collaborate in the coming weeks to release a consultation on central bank digital currency (CBDC) and broader cryptocurrency regulation. The Bank of England had previously sought feedback on conceptual designs for a central bank digital currency sample wallet and is set to commence a five-month testing phase in conjunction with the Rosalind project.

Accuracy More Important Than Speed

UK Economic Secretary Andrew Griffith stated in Parliament this week that for a digital pound, also known as CBDC, accuracy is far more important than speed, and this will require a significant amount of time for thorough preparation. However, considering many public policy considerations for digital currencies, fiat-backed stablecoins might be the first to be launched.

The Financial Services and Markets Bill, currently undergoing its second reading in the House of Lords, covers the regulation of stablecoins in the UK and enhances regulatory oversight of crypto assets. Griffith aims to establish a "growth and innovation" regime for crypto assets and stablecoins by 2023.

Rosalind Project

The Rosalind project, a collaboration between the Bank of England and the Bank for International Settlements, aims to build an API prototype for retail CBDC. It employs a two-tier distribution model - wholesale + retail - allowing central bank ledgers and private sector service providers to securely offer retail payment functions.

Public Solicitation for Wallet Designs

The Bank of England issued a call for concept validation of central bank digital currency sample wallet designs in December last year, with a budget of £200,000. Currently, 20 firms have completed applications, and a five-month testing phase is expected to commence mid this month.

Developers are required to design wallet apps for Android and iOS, offering wallet management functionalities such as registration, fund inquiry, payments, depositing or withdrawing funds from banks, payment via account ID or QR code, and integration with the Rosalind API for testing purposes.

Emphasizing Privacy Protection

Griffith highlighted in Parliament that the first use case may be the settlement of wholesale financial transactions. However, if the UK decides to introduce a retail-focused CBDC, it would be a two-tier design where intermediary institutions like banks issue digital wallets for personal use, and the government would not access or understand individual transaction data unless there are suspicions of money laundering or fraud. Griffith stated:

The government takes these issues very seriously and will carefully consider these privacy concerns as the basis for CBDC design.