The Bank of England has posted a request for applicants for a contracted service to create a proof of concept digital wallet for a Central Bank Digital Currency (CBDC). The Bank has been investigating the potential for a digital pound, similar to many other central banks worldwide.
The posting explains that the objective is to “sharpen functional requirements for both the Bank and private sector.” At the same time, the Bank does not expect to develop a user wallet itself, but it may create payment rules and user experience guidelines for the private sector. The project will also support the Bank’s efforts on Project Rosalind, an initiative of the BIS Innovation Hub.
To date, the Bank has not pursued any work on a digital wallet so it will be green field development.
Gilbert Verdian, founder and CEO of Quant – a blockchain development firm, commented on the Bank’s announcement:
“Inflation and the activities of the Bank of England have dominated the financial news agenda in 2022 – and are likely to continue to do so in 2023. A well-designed CBDC can help provide a real-time view of risks and currency outflows to help implement specific and targeted measures to prevent financial contagions from spreading further in the event of a crisis. A digital pound enables consumers and businesses to automate complex and cumbersome processes and implement logic into money. It offers new efficiencies and faster workflows to better meet our needs as our living experience becomes increasingly digital. Many critics cite privacy and potentially overbearing government controls as barriers to implementation. They are missing that blockchain technology makes it possible to protect the privacy of individuals. Also, many countries, such as the UK, are taking very considered approaches to adoption. Pilots involve extensive public and regulatory consultation, with business and institutional involvement, to ensure that CBDCs meet our democratic needs. Meanwhile, with Project Rosalind, the BIS Innovation Hub London and the Bank of England are looking to the future – testing how to issue, embed and settle CBDCs for retail payments use cases with industry participants. The project includes the private sector in an effort to innovate different payment use cases and applications that use retail CBDCs for a better experience.”
While many jurisdictions are researching CBDCs, some industry insiders express concern about potential privacy issues and the potential for excessive government insight and control over individual expenditures and transfers of money. Some observers are of the opinion that privately issued, highly regulated stablecoins are a better option – perhaps with CBDCs utilized in institutional transfers.
Applicants are expected to submit information for the CBDC digital wallet by December 23, 2022.