The Bank of England and the Massachusetts Institute of Technology (MIT) have agreed to collaborate on a twelve-month joint research project into central bank digital currencies (CBDCs).
Alongside MIT Media Lab’s Digital Currency Initiative (DCI), the bank will explore the potential technical challenges, trade-offs, and risks involved in designing a CBDC system. The project is intended to be for research purposes only and will not result in an operational CBDC.
Britain’s central bank has been exploring blockchain for several years now and CBDCs more recently. In March 2020, it released a discussion paper on the opportunities and challenges developing a CBDC could bring, to which the DCI responded with proposed solutions.
Last April, the bank created a joint taskforce along with the Treasury to further explore CBDC potential, with an up-to-date discussion paper released on March 24.
CBDCs are being looked at across other areas of the UK government and public sector as well. In January, the House of Lords Economic Affairs Committee released a report that concluded there was no need to rush into developing a British CBDC.
“While a CBDC may provide some advantages on speed of settlement and cheaper and faster cross-border payments, it would present significant challenges for financial stability and the protection of privacy,” the report stated.
The Bank of England is the third national (or regional) bank to join the DCI’s OpenCBDC project, following on from the Bank of Canada last week and the Federal Reserve Bank of Boston which began collaborating in September 2020.
CBDC research and testing has been ramping up globally over the course of the last year. Nigeria and the Bahamas have already launched their CBDCs, and China is currently piloting its digital yuan across millions of active users.
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