Minutes
Date: 8 March 2022
Item 1: Welcome
Tom Mutton (Chair) welcomed the Members to the third CBDC Technology Forum meeting. He provided a short summary of the February 2022 CBDC Engagement Forum meeting.
Item 2: Bank of International Settlement Innovation Hub introduction
The BIS introduced the London Centre Opens in a new window of their Innovation Hub, which was launched in June 2021. In January, the BIS announced that the London Centre's first project would consider how individuals and businesses could benefit from the development of CBDCs. The BIS presented the latest approved project, Project Rosalind, which would seek to design an API prototype for retail CBDC, along with a set of API standards, and a sandbox exposing a ‘skeleton’ of the API to allow participants to experiment with innovative payment use cases for retail CBDC. The project would also include a report with insights and implications for interoperability, user adoption and ecosystem development.
Item 3: Discussion of survey results
The Bank provided a short summary of the results of a survey conducted with Forum Members after the last meeting on 24 January 2022. The survey aimed to gather any further, more structured, thoughts from Members on the topics discussed at the meeting.
Item 4: Interoperability
The Bank briefly introduced the topic by providing possible definitions of interoperability and convertibility and stated some basic assumptions, namely that CBDC interoperability with payment schemes would be required, as would convertibility with physical cash.
One Forum Member presented on the drivers and degrees of interoperability between CBDC and existing payments infrastructure. The presentation underlined the importance of interoperability and leveraging existing infrastructure to support uptake and facilitate a hypothetical CBDC rollout. Interoperability would also be key if aiming to maintain and improve on the current level of user experience. The presentation also noted that tight coupling with other systems might not be needed as it might constrain system design and risk recreating the status quo. The presenting Member made the assumption that interoperability was to leverage the messaging framework from existing mechanisms.
The presentation highlighted the complexity of digital payments by showing a diagram with all the capabilities required for a generic payment infrastructure. It also listed out the possible points of interoperability: acceptance & routing, access, operational standards and data standards. The presentation included a side by side comparison of the payment flow of a debit card and a hypothetical payment flow of CBDC, highlighting potential differences and similarities in the key processes.
The presentation concluded proposing areas where it could be desirable to build interoperability, which included standards for managing identity, acceptance protocols, data standards and fraud controls. One Member thought that it was also important to consider liability and system-wide risk management as possible interoperability areas.
Members agreed there were many areas of possible interaction and integration as identified in the presentation. Some Members questioned about interoperability in the settlement layer, and whether it would be similar to how card networks were exploring stablecoin settlement on their networks. It was observed that depending on the underlying CBDC distribution model (i.e. 2 tier, account-based, hybrid-based or token-based), the messaging and settlement layers could be split, and existing rails could then potentially be used to carry CBDC transactions. Application of any identity, access and fungibility requirements might then happen at the intermediary level. It was noted that interoperability would be critical for CBDC if it aimed to be an additional digital payment rail, but less likely so if it aimed to purely recreate cash in digital form.
Other Members noted that another aspect of interoperability could be in the area of programmability. A model discussed at the previous meeting where the same programmability framework applied for CBDC and other existing payments systems and commercial bank money, was used as an example.
Item 5: Inclusion – focus on offline capability
The Bank introduced the topic by providing a summary of the Engagement Forum discussion on how CBDC could help mitigate financial exclusion. A presentation by a Member of said Forum provided an overview of the main drivers of exclusion and possible CBDC features that could be implemented to mitigate those. The capability to perform offline payments was noted as critical for a segment of the UK population with limited access to internet connectivity.
One Member of the Forum presented on how this might be achieved with CBDC, focusing on the technical requirements for achieving consecutive offline payments. The proposed solution consisted of an offline wallet with the ability to seal a transaction from one user to another. The transport of sealed transactions could be done via QR codes, NFC or Bluetooth. It was noted that the transport could also be done using basic phones with SIM cards via SMS, which would not be purely offline, but no internet connectivity would be needed.
The presentation went on to explain how offline received funds could be re-spent and also how they could be redeemed online. It also provided insight on how to tackle the risk of double spending offline and proposed solutions to increase resilience against software and hardware attacks. It was noted that Tamper Resistant Elements, i.e., physically secure enclaves, such as the ones incorporated in high end smartphones could be used, but they are of variable functionality across phone models which increases complexity. Tamper Resistant elements in smart cards was highlighted as being more uniform and resilient to attack.
One Member opined that choice and control of custodianship was a key aspect of inclusion and warned against relying on third-party secure elements for any potential CBDC, noting that users then would always have to rely on third parties as custodians of their data. Other Members thought that there were currently no real alternatives to these elements to provide a secure form factor.
Some Forum Members noted that offline capability could open the door to loss of funds (e.g. if devices were lost, broken or stolen). One Member noted potential mitigants, such as placing settlement time windows on offline balances, such that if they were not accounted online for after a time period, funds might be reclaimed. Other Members questioned the need for loss-recovery features on CBDC, given it is not a feature of physical cash. It was argued that there may be confusion for consumers if CBDC payment devices being lost resulted in funds being lost, as payment card issuers today are liable for funds loss. One Member observed that cryptocurrency wallets could suggest ways to deal with loss, such as backup passphrases to restore a wallet.
The Forum discussed other inclusion aspects, such as digital literacy or the lack of access to modern technology such as smartphones. Smart cards were proposed as an option to counter that. It was noted that these cards may need to be brought to a networked terminal for use (e.g. cash in/out, pay or transfer). Other barriers to inclusion, such as the inability to access traditional banking services, were also discussed. Some Members thought offering a limited service with transaction or balance limits and a light KYC requirement could be an option. The provision of digital ID through a mobile device was a technology solution proposed to potentially mitigate this.
Closing remarks
The Chair closed the meeting and thanked the Members for their contributions. The next meeting would be in June 2022.
Annex: Meeting documents
Attendees
Tom Mutton (Chair), Bank of England
Will Lovell, Bank of England
Katie Fortune, Bank of England
Danny Russell, Bank of England
April Baracho, Bank of England
Nick Vaughan, Bank of England
Harry Doyle, Bank of England
Bhavin Patel, Bank of England
Ben Dovey, Bank of England
Guillermo Pons, Bank of England
Members
Ashley Lannquist, IMF
Bejoy Das Gupta, eCurrency
David MacKeith, AWS
Edwin Aoki, PayPal
Geoff Goodell, UCL
Inga Mullins, Fluency
James Whittle, PayUK
Keith Bear, Cambridge Centre for Alternative Finance
Lauren Del Giudice, Idemia
Lee Braine, Barclays
Mark Shaw, Spotify
Max Malcolm, Visa
Michael Adams, Quali-Sign
Patrick O'Donnell, Mastercard
Paul Lucas, IBM
Richard Brown, R3
Sarah Meiklejohn, IC3
Vikram Kimyani, Oracle
Will Drewry, Google
Observers
Bank of International Settlement Innovation Hub (BIS IH)
National Cyber Security Centre
Apologies
Alan Ainsworth (Open Banking Implementation Entity)
Andrew Flatt (Archax)
Dominic Black (Ledgerz)
Joshua Jeeson Daniel (JP Morgan)
Matthieu Saint Olive (Consensys)
Sean Mullaney (Stripe)
Simon Brayshaw