Potential of Central Bank Digital Currencies (CBDCs) for Introducing Programmability to Money

The Bank of England (BoE) and the Bank for International Settlements (BIS) Innovation Hub have conducted a trial named Project Rosalind to explore the potential of central bank digital currencies (CBDCs) for introducing “programmability” to money. The trial has highlighted that CBDCs could offer central banks and governments multiple new tools that they did not have before, including the ability to decide how, where, and for what people should spend their money.

Key Findings

The trial examined over 30 different use cases that a well-designed digital currency could offer with a focus on the role of application programming interfaces (APIs) in the design of CBDCs. The trial showed that CBDCs could offer increased convenience for consumers, such as enabling them to pay via QR codes and other methods at shops and restaurants. Programmable CBDCs could also include smart contract-like features where individuals and businesses could allocate funds for specific purposes and trigger payments based on predefined conditions.

However, programmable CBDCs would give central banks and governments more control over individuals’ money. The researchers emphasized that their findings have implications beyond the United Kingdom and encouraged central bankers worldwide to review the results and consider the insights when designing retail CBDC systems.

Francesca Hopwood Road, Head of the BIS Innovation Hub London Centre, stated that the Rosalind experiment has advanced central bank innovation in two key areas by exploring how an API layer could support a retail CBDC system and how it could facilitate safe and secure CBDC payments through a range of different use cases. The researchers believe that Rosalind can contribute significantly to how organizations worldwide are thinking about and engaging with the design of retail CBDC systems.

The trial coincides with the UK’s exploration of a potential digital pound, commonly known as ‘Britcoin.’ The BoE is currently seeking public feedback on a consultation paper produced in collaboration with the country’s Treasury. While no official decision has been made regarding the digital pound, there is widespread speculation that the UK could end up issuing a CBDC. Bank of England Governor Andrew Bailey has also made the case for a digital pound earlier this year, stating that a digital pound would provide a new way to pay, help businesses, maintain trust in money and better protect financial stability.

The trial conducted by the Bank of England and the Bank for International Settlements Innovation Hub has highlighted the potential of CBDCs for introducing programmability to money. The trial focused on the role of APIs in the design of CBDCs and examined over 30 different use cases. While programmable CBDCs could offer increased convenience for consumers, they would also give central banks and governments more control over individuals’ money. The researchers encourage central bankers worldwide to consider their findings when designing retail CBDC systems.