At a Bank of England forum held last month – which included some of Britain’s top banks – members largely expressed support for the creation of a “basic but extensible” core platform if a
Central Bank Digital Currency (CBDC) were to be developed in the UK.

This way, attendees agreed, the private sector would be able to innovate on top of the platform, adding value propositions which would “shape and accommodate” use cases for the digital currency.

The event, which discussed the arguments for and against determining specific use cases and functionalities prior to the development of a CBDC, was attended by executives at the Bank, as well as bosses and execs from Innovate Finance, Starling, Morgan Stanley, Visa, Nationwide, HSBC, Mastercard, NatWest, SWIFT, and others.

It was suggested that a flexible and extensible platform would “allow innovators to identify and develop potential use cases”, promoting competition by reducing barriers to market entry.

Some members said that limiting a CBDC to pre-defined functionalities would be “detrimental to innovation”, as this could limit the ability to accommodate future use cases that can’t be anticipated at this early stage.

The risks of aiming for too much flexibility was also highlighted, with one attendee suggesting this could lead to complexity and ultimately a reduction in the utility of the cryptocurrency.

Inclusion and access

During the CBDC forum, HM Treasury said that building a CBDC in line with its financial inclusion objectives means promoting access to useful and affordable financial products and services, whatever a person’s background or income.

It was argued that a universal CBDC, with free and unconditional access for everyone, would tackle some of the difficulties faced by the unbanked, such as not having a fixed address or not being able to prove their identity.

One way to address this, said one member, would be by linking CBDC accounts to other official databases with informed consent of the users.

Another point was made about how a CBDC could be used by those who rely on cash, with it being suggested that the digital asset should aim to replicate some of the features of cash, including tangibility or the ability to segment payments or to put money away for specific purposes, in order to support budgeting.

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