Bank of England partners with MIT for digital currency research

Goals include designing a central bank digital currencies (CBDC) system

Bank of England                                 
Among the potential benefits listed, CBDCs could support a resilient payments landscape - Photo: Shutterstock

The Bank of England (BofE) has partnered with the Massachusetts Institute of Technology (MIT) to deepen its understanding of central bank digital currencies (CBDCs).

The United Kingdom’s central bank announced that it will collaborate with the US university’s Digital Currency Initiative (DCI) team “to explore potential technical challenges, trade-offs, opportunities and risks involved in designing a CBDC system”. 

Although it stated that the project will focus on “exploratory technology research and is not intended to develop an operational CBDC”, the BofE said: “Undertaking this type of technical research will help inform wider policy thinking around CBDC.” 

The DCI is already conducting CBDC research with the Bank of Canada and the Federal Reserve Bank of Boston. 

A Digital Pound

Research into and development of digital versions of national currencies increased significantly between 2020 and 2022, spurred in part by the declining use of physical cash and also by the growth of decentralised media of exchange such as cryptocurrencies.

Among the larger developed economies, China has arguably spearheaded the push to introduce CBDCs. Having conducted multiple trials in 2021, the People’s Bank of China (PBoC) partly launched the digital yuan earlier this year.

The first sign of the Bank of England’s interest in the concept came in March 2020 with the paper Central Bank Digital Currency: opportunities, challenges and design

Among the potential benefits listed, it stated that CBDCs could support a resilient payments landscape, avoid the risks of a new form of private money creation and support competition, efficiency and innovation in payments. 

The results of an exploratory task force established in 2021 and led by the bank and the treasury were published 0n 24 March. 

The Bank 0f England reaffirmed its mission “to promote the good of the people of the United Kingdom by maintaining monetary and financial stability” and stated that the “declining transactional use of banknotes and increasing use of privately issued forms of money means that the payments landscape is changing.” 

Announcing the launch of a new joint assessment which will consider the case for a UK CBDC, the report stated: “If the results of a ‘development’ phase conclude that the case for CBDC is made, and that it is operationally and technologically robust, then the earliest date for launch of a UK CBDC would be in the second half of the 2020s.”

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