Minutes
Date: 18 September 2024
Item 1: Welcome
Nick McLaren (chair) welcomed members to the second Academic Advisory Group (AAG) meeting. He noted that the AAG will now be chaired solely by the Bank. This decision reflected the Bank’s experience in engaging with the academic sector, and the Bank and HM Treasury would continue to work closely together during the digital pound design phase.
The chair then invited the Director for CBDC and Fintech, Tom Mutton, to say a few words. Tom thanked members for their collaboration and highlighted members’ crucial role in bringing a multi-disciplinary perspective to our work on a digital pound. Tom noted the importance of digital public infrastructure. Members discussed the role that international partners can play in supporting this work and lessons we can draw from other jurisdictions.
Item 2: Privacy and the digital pound – Presentation by Alex Voorhoeve
Professor Alex Voorhoeve presented a philosophy perspective on privacy aspects of a digital pound. Alex outlined the distinction between an individual’s interest in preserving their own privacy and the collective interest in preserving an individual’s privacy. He raised concerns around how an individual can give up information on themself and in so doing comprise the privacy of others. Lastly, he highlighted the different challenges of delivering privacy in public versus private sector services.
Members discussed how the norms for privacy differ in an international context, and the relationship between financial inclusion and the use of personal data. Some members also noted the importance of education to ensure individuals understand the role of privacy in financial services. One member felt that it would be important to ensure people continue to have the option to use different payment methods, so they have a choice over whether or not to share their data through a digital pound platform.
Item 3: Why so many Coins? Examining the Demand for Privacy-Preserving Cryptocurrencies – Professor Gbenga Ibikunle
Professor Gbenga Ibikunle presented a research study into the role of privacy and anonymity in financial markets, focusing on cryptocurrency adoption and potential lessons for CBDCs. He noted that those crypto assets with more privacy enhancing features tended to have increased usage compared to non-privacy coins, following regulatory interventions countering illegal activities, suggesting these features were highly valued by certain users. However, some care was needed since some of the uses for these anonymous forms of payment may be associated with illicit activities. In the context of a digital pound, it would be important for adequate checks to be made when moving between other digital assets and a digital pound, so illicit activities could not be inadvertently supported by its introduction.
Members discussed the details of this study and noted the difficulty in fully defining what is, and what is not, private. Other members noted that technologies introduced in cryptocurrencies may have important applications in wider digital money, but there is an important balance to ensure privacy for individuals without facilitating illicit activities.
Item 4: Roundtable discussion
The chair thanked the presenters and opened for wider discussion. The chair reiterated the main public policy objectives for a potential digital pound– preserving the singleness of money, and catalysing innovation. The chair also noted that a digital pound is just one part of the Government and Bank of England’s efforts to ensure that the UK remains at the forefront of innovation in money and payments. The chair asked members to consider what role a digital pound could play against both the current, and future, payments landscape. The chair asked members to consider two questions, focused on privacy, in their discussions:
- What role does privacy play in the uptake of new innovations and how important is it in building trust in an ecosystem?
- How do perceptions or expectations of privacy change between public and private sector bodies?
One member noted that there has been market failure linked with privacy, and how users can control their own data. The member noted the role of regulation, highlighting the Digital Markets Act which mandates that key infrastructure providers are unable to combine different aspects of a user’s data without explicit user consent. Some new technologies have also provided further control to users, as well as increasing transparency. Other members agreed, stating that interface design and user experience is very important. Referencing their own research into mobile development, one member concluded that an open communication with end users throughout the development of a new product is important. If users understand design principles and how a developer has attempted to achieve these, this can help build trust in a system.
One member noted that users’ preferences for payments differs depending on the value and type of payment occurring. They noted, therefore, that the trade-offs between convenience and privacy could differ between low value payments, such as train or bus journeys, and higher value payments, such as purchasing a car. Other members highlighted the potential use case for a digital pound for low value but highly private payments, broadly replicating payments in cash today.
Some members highlighted that a major problem is the complexity of privacy policies and the use of personal data. Members felt this leads to a broad misunderstanding of how data is collected and the implications of granting access to data. Other members agreed and felt that education was an important tool in users’ understanding of how sharing their personal data impacted their privacy. Some suggested that the academic community was well positioned to support this, given they have the expertise and provide an unbiased, and generally trusted point of view.
Members discussed the role of legal frameworks in a digital pound ecosystem. They felt it was important to understand where a digital pound may strengthen this privacy further and considered the international context of other central banks’ work in this field. If different jurisdictions implemented different data standards and expectations, this could impede cross border transactions. The chair agreed this was an important area to consider further work.
One member posed a question around regulation of digital pound wallet providers in comparison to existing commercial bank accounts. Many users of services do not alter the standard privacy settings, so there may be a case for a digital pound to operate different default standards to banks. The chair clarified that the working assumption is that a digital pound wallet would have similar minimum standards to existing bank accounts but could also provide users an easier way to control how their data is used or shared. Innovative services provided by wallet providers (Payment Interface Providers) could make this simpler for end users.
Members discussed the role of a central bank and whether it is the Bank of England’s responsibility to determine the level of privacy within a digital pound ecosystem. Without a profit incentive, there is an opportunity for privacy standards to be higher within public sector systems, but there must be Government commitments to this. However, there would be a limit to how much further this could go, as anonymous payments would not meet public policy objectives. One member noted that protecting privacy should not be the role of the central bank, and that the courts are a mechanism for protecting citizens’ rights including privacy. Another member suggested that wider discussions around digital public infrastructure and digital identity mean that it is not the central bank who should lead these discussions.
Another member highlighted that the proposals in the Consultation Paper, where the Bank would not see any personal data, was sensible. Wallet providers should and can provide enhanced security for end users, but users should not be anonymous. Another member felt that technology was only one part of the solution and suggested that a digital pound would be reliant on trust in government, regardless of how effective the technological protections were.
Members agreed that choice is an important factor, as allowing users to access different payment services builds trust. The Bank must, therefore, ensure wider developments in payments such as stablecoins are sufficient regulated. Other members felt independent bodies ensuring relevant privacy protections may be most effective. One member felt further research could identify the key factors that influence trust.
Members highlighted the role that private sector participants play in similar ecosystems, and how previous government initiatives required banks to facilitate it, noting Open Banking in particular. They queried if private sector firms would be supported to enter the digital pound ecosystem, given the differing nature of providing wallets versus deposit taking. One member felt regulation would be needed to ensure the digital pound operated alongside Open Banking.
Item 5: AOB and close
The chair thanked members for a wide-ranging discussion and outlined the Bank’s intention to create small informal working groups as part of the AAG, to provide evidence and considerations against a series of questions relevant to assessing the case for a digital pound. Nick then noted that the Bank intended to host a multi-disciplinary academic conference focused on retail CBDC next year and asked members for ideas and suggestions in this space. Members expressed an interest in this and thought it would be helpful for the AAG’s work.
Attendees
Bank of England
Nick McLaren (chair)
Tom Mutton
Members
Alexander Edmund Voorhoeve, London School of Economics
Alistair Milne, Loughborough University
Andrew Theo Levin, Dartmouth College
Anna Omarini, Bocconi University
Bill Buchanan, Edinburgh Napier University
Burcu Yüksel Ripley, University of Aberdeen
Danae Stanton Fraser, University of Bath
Darren Duxbury, Newcastle University
David Robert Skeie, Warwick Business School, University of Warwick
Davide Romelli, Trinity College Dublin
Dirk Niepelt, University of Bern & CEPR
Doh-Shin Jeon, Toulouse School of Economics
Gbenga Ibikunle, University of Edinburgh
Iwa Salami, University of East London
Jonathan Michie, Kellogg College, University of Oxford
Marta F. Arroyabe, University of Essex
Michael Cusumano, Sloan School of Management, MIT
Pinar Ozcan, Said Business School, University of Oxford
Sheri Marina Markose, University of Essex