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Barclays’ paper sets out a methodology for the mitigation of potential fragmentation risk presented by central bank digital currency (CBDC), through an architecture that places CBDC and commercial bank money on a similar footing.
Written by two members of the Barclays Chief Technology Office, managing director, Lee Braine, and enterprise architect in advanced technologies, Shreepad Shukla, the paper explores how ecosystems can provide a “common programmability layer” that interfaces with account systems at both commercial banks and the central bank.
By adopting and extending the Bank of England’s ‘platform model’ for a potential UK CBDC, it considers how a central bank core ledger, an interface to that ledger, and authorised Payment Interface Providers which allow users access to CBDC, would function in this proposed architecture.
On the paper’s release, Braine stated: “there is a risk of fragmentation in payments markets and retail deposits unless existing forms of money and new forms of money such as central bank digital currencies are interoperable and have similar operational characteristics.”
“This fragmentation risk can be mitigated by placing the different forms of money on a similar footing and so we explored on how industry ecosystems could provide a common programmability layer that acts as an overlay service interfacing with the account systems at both commercial banks and the central bank. There could potentially be multiple ecosystems providing competing services using different platforms and technologies, but using common policies and standards.”
Braine is a member of the Bank of England and HM Treasury’s CBDC Technology Forum, and his paper notes that we can expect both bodies to launch a consultation to set out their assessment the case for a UK CBDC, during 2022.
Fragmentation risk was recently raised by respondents to the Bank of England’s discussion paper on new forms of digital money, who noted that interoperability would mitigate this concern and that CBDC should be integrated with existing banking infrastructure, mobile wallet providers, POS and ATMs to utilise new forms of digital money in the broadest possible way.
Barclays is currently developing a prototype of this ‘illustrative industry architecture’, and plans to publicly release a report on its findings this summer. The bank is also a member of The Payments Association, which is participating in the ‘Project New Era’ initiative that published a green paper in February, calling for greater collaboration between central banks, regulators, commercial banks and other financial institutions.
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