Minutes
Date: 11 June 2025
Item 1: Welcome
Nick McLaren (chair) welcomed members to the fifth meeting of the CBDC Academic Advisory Group. He gave a brief update on the upcoming Innovation in Money and Payments Conference highlighting the aim was to bring together academics, central bankers, and industry participants. He noted that the call for papers was open and encouraged members to consider participating and to share amongst their networks.
The chair highlighted recent Bank publications: a design note focusing on digital pound intermediaries and an experiment report on offline payments.
The chair outlined the agenda for the meeting where each of the five subgroups would give presentations updating the group on their work since the last meeting.
Item 2: Subgroup presentation – Financial & Monetary Stability
Subgroup headline question: Is a digital pound consistent with the BoE’s statutory objectives?
The subgroup explained that a key theme from their work has been considering the risks of low adoption and around a failure to incentivise enough intermediaries to offer digital pound services. But set against that, there are also considerable risks around inaction and not developing a digital pound. In their view it was, therefore, right for the Bank to take a proactive but cautious approach to the design phase. They introduced insights from existing surveys and models, particularly focusing on the topic of adoption and disintermediation of the banking sector.
On adoption, the subgroup highlighted challenges in CBDC-related modelling. Some approaches in the literature rely on theoretical assumptions based on other forms of money, or they use existing banking data. However, the subgroup proposed conducting surveys of households and businesses to improve the accuracy of models of CBDC adoption.
It was noted that early adopters of CBDC are likely to be individuals already using digital assets. This is reflected by some responses to consumer research summarised in the Annex of the digital pound Consultation Paper. They also cited findings from a survey by The Bundesbank, which suggested adoption would vary across the population, influenced by factors such as inflation expectations, demographics, and trust. Bank for International Settlements research highlighted that privacy expectations could also be a key determinant of adoption.
Turning to bank disintermediation, the subgroup noted an emerging consensus that CBDC could be welfare-enhancing, though it may also pose risks to financial stability. Two types of disintermediation were identified in the existing literature: slow (linked to CBDC substituting for bank deposits in normal times) and fast (associated with increased withdrawal risks during financial stress). The latter would pose greater risks to financial stability.
To explore these dynamics in greater detail, the subgroup presented a UK-focused agent-based model, aiming to identify likely CBDC adopters, estimate expected adoption, and therefore support an assessment of systemic risk implications.
The model does not include interoperability costs between different forms of money, as they are assumed to be zero. The model adopts Myerson’s binomial framework, where individuals make a binary choice whether to adopt CBDC or not based on an initial probability of successful adoption. Therefore, there is a need to reach a critical mass of adoption before network effects can take over in driving further adoption.
The subgroup summarised their suggestions for further considerations. These included exploring whether limits and remuneration of a digital pound could be tailored to support financial inclusion. They emphasised a need to balance the trade-off between mitigating disintermediation risks through the use of limits and not remunerating a digital pound, versus the public good benefits from universal provision of a new risk-free form of retail money. The group also suggested collaboration between central banks to ensure research and analysis are shared.
Discussion
Members questioned the model’s assumption that CBDC is primarily a store of wealth and not a means of payment, as this framing could overstate the risk of bank disintermediation. Members also discussed the differences between switching an account into a digital pound wallet versus the choice of whether to make an individual payment in a digital pound or alternative form of payment.
They also discussed the impact a digital pound would have on existing digital asset markets, and the likelihood of secondary market pricing. Members determined that without full knowledge of banks’ liquidity positions, it is not possible to fully determine the financial stability risks of CBDC adoption.
Item 3: Subgroup discussion – Security
Subgroup headline question: Does the digital pound design proposition meet best practice for a secure provision?
The subgroup presented an overview of privacy and governance considerations for a digital pound, raising questions around benchmarks, safeguards, and the Bank’s role in protecting both individual and collective privacy.
One member challenged the assumption that current UK bank accounts and payment systems are the appropriate benchmark for a digital pound. The subgroup proposed that cash, particularly for everyday transactions, may offer a more meaningful standard, given its anonymity and public trust. They introduced a framework distinguishing between personal privacy (control over one’s own data), third-party privacy (where one person’s data may reveal information about others), and collective privacy (where aggregated data can shape societal or political outcomes). The subgroup highlighted that even though the Bank and HMT will not have access to personal information, there may still be implications to privacy due to data aggregation by private intermediaries.
The subgroup questioned whether PIPs and ESIPs would be held to equivalent privacy standards and called for stronger safeguards on how these entities collect, use, and monetise data. They emphasised the need for users to be empowered to make informed choices, while also underlining the limitations of individual consent-based models. Instead, they supported structural protections, such as default privacy-preserving settings and regulatory mechanisms, to address the broader externalities of data sharing.
The subgroup supported the Bank’s proposal for full anonymity at the core ledger level. They noted that pseudo-anonymity, seen in some blockchain systems, would not be sufficient. Examples from OpenCBDC and Project Hamilton were referenced to illustrate how transaction data can be anonymised effectively. The subgroup also highlighted challenges related to the UK’s lack of a national digital ID infrastructure, contrasting it with the EU’s progress on EUID.
The subgroup raised concerns about the effectiveness in PIPs being able to carry out sufficient KYC and AML checks in the case where users can hold multiple wallets at different PIPs – although it was noted banks face similar challenges today. They encouraged the Bank to consider this as part of the design phase and consider the benefits of system-wide fraud analysis.
Finally, the subgroup addressed the challenges and opportunities of offline and cross-border payments. They supported the introduction of offline payments for resilience and privacy, with the potential to replicate the anonymity of cash. However, cross-border use cases were flagged as complex, involving regulatory, enforcement, and data protection challenges. While the Bank’s consultation proposed that non-UK residents would be able to hold digital pounds, the subgroup called for greater clarity on the role of non-UK intermediaries and the need for international coordination to manage associated risks.
Discussion
One member asked whether there was a tension between regulatory KYC requirements and the use of privacy-enhancing technologies such as zero-knowledge proofs (ZKPs). It was clarified that while a user’s PIPs would know their customers’ identities, ZKPs could be used to validate transactions without exposing personal data to the core ledger, maintaining a balance between compliance and privacy.
A discussion followed on whether the system should aim for perfection from the outset. One view stressed the importance of pragmatism – arguing that the current system already fails to protect privacy and that a ‘good enough’ solution could still offer meaningful improvements. Others cautioned that launching with an imperfect model could embed foundational flaws that are difficult to correct later.
Concerns were raised about how restrictions on data use and monetisation might affect the competitiveness of PIPs, particularly in comparison to traditional payment systems. The potential impact on innovation and market dynamics was noted. Additionally, the balance of privacy for low-value transactions was questioned, with one member suggesting low value prepaid cards may be warranted.
Item 4: Sarah Breeden Q&A session
Sarah Breeden, Deputy Governor for Financial Stability, joined the meeting to provide members with her perspective on the Bank’s work on a digital pound and how this related to broader work on the future of retail and wholesale payments. She opened the session by expressing her appreciation for the work of the group, highlighting the value of its multidisciplinary expertise and diverse perspectives. She emphasised that the Bank deeply values the AAG’s contributions, particularly in areas outside our core areas of expertise, such as privacy, AML/KYC, and behavioural economics.
The AAG’s work informs the Bank and HM Treasury’s assessment of the case for a digital pound. This includes evaluating the digital pound within the broader payments ecosystem. Sarah noted that the digital pound design phase is part of the Bank’s work across the payments landscape, including work on new forms of money such as retail and wholesale CBDC, tokenised deposits and stablecoins, as well as innovation in existing domestic and cross-border payment infrastructure. Sarah noted that the Bank’s work aligns with global developments and is being coordinated with other UK authorities, notably HM Treasury. She stressed the importance of supporting innovation, resilience, and effective governance across the financial system.
Discussion
One member asked whether the digital pound should be considered in isolation or as part of a wider account-to-account payments strategy. Sarah agreed that the Bank’s work is considering the full payments ecosystem, including improvements to account-to-account infrastructure, tokenised deposits, and stablecoins. A key area of focus was how to achieve interoperability across these different forms of money and infrastructures.
Members also raised concerns about public understanding and the implications for adoption of a digital pound. Anecdotal evidence illustrated the high cost of current payment methods and the need for simpler, more affordable alternatives. The importance of early public education was emphasised, with examples showing how informed debate can shift public opinion. Sarah agreed that public engagement was an important part of the digital pound work, noting citizen panels and academic outreach are being used to gather public perspectives. At this stage engagement was focused on payments industry and more expert audiences, but if a decision were made to progress with a digital pound, then further engagement with the broader public would be necessary.
Questions were also raised about the benefits and costs of disintermediation of the banking sector. One member argued that a digital pound could enhance stability by offering the public a risk-free alternative to commercial bank money and reducing systemic risk. Sarah noted it’s also important to consider the impact on lending and the cost of credit.
Members asked about the sequencing of payments innovation, and how the Bank would define success or failure. Sarah responded that the Bank’s focus was on achieving public policy objectives such as stability, innovation, and resilience.
Item 5: Subgroup discussion – Innovation
Subgroup headline question: Is a digital pound likely to meet the core objective of payments innovation?
The subgroup presented findings from their literature review to explore whether a digital pound could catalyse innovation in the UK. The presentation focused on two key themes: payment system efficiency and financial inclusion. Kyeyoung Shin (Saïd Business School, University of Oxford) was invited to join this session, reflecting his contribution to research conducted for the subgroup.
In terms of payment system efficiency, the subgroup highlighted that CBDCs could streamline payments by reducing intermediation, enabling faster settlement, supporting 24/7 availability, and fostering competition and innovation. They also offer potential for improved cross-border functionality and user driven programmability. However, challenges include high development costs, the presence of existing digital payment systems, private sector inertia, and risks related to interoperability and cybersecurity.
The subgroup observed that while CBDCs have potential to improve financial inclusion, they are not a universal solution. Their impact depends heavily on design and implementation. Opportunities identified include enabling offline functionality, tiered KYC to reach unbanked populations, reducing merchant acceptance costs, and using smart contracts to support inclusive financial tools. CBDCs could also serve as gateways to broader financial services such as credit, savings, and insurance. However, barriers remain which may limit adoption, particularly among marginalised groups.
The subgroup discussed which potential use cases for a digital pound might prove of most unique value. In particular, they noted that offline capabilities could support digital resilience. It recommended evaluating innovations based on their time to impact, and their alignment with public policy goals.
The presentation also included a case study on China’s retail CBDC, e-CNY, which launched in 2020 and has since expanded to 28 cities. Despite promotion – including salary payments, discounts, and giveaways – adoption remains relatively limited, with e-CNY accounting for just 0.16% of China’s cash-equivalent money supply. Platforms like AliPay and WeChat Pay, which already offer low transaction fees, have limited the incentive to use e-CNY.
The subgroup also raised Project mBridge, where cross-border CBDC transactions have demonstrated significant efficiency gains compared to SWIFT. These developments were presented as valuable international lessons for the UK’s own exploration of cross-border functionality.
Discussion
Members discussed ‘multi-homing’, referring to consumers using multiple digital payment platforms simultaneously. It was noted that merchants are generally open to accepting multiple forms of payment, especially when integration is seamless. While platforms like AliPay and WeChat Pay charge fees, these are often lower than other forms of payment system, making them attractive to merchants.
One member questioned the relevance of China’s experience for countries like the UK, where debit cards are more common. The issue of interoperability between e-CNY and private platforms was also discussed. It was confirmed that transfers between platforms are now possible. Greater transferability is seen as key to driving adoption and reducing platform dominance. It was suggested that mBridge’s effectiveness may be limited without broader CBDC adoption.
Members also discussed tiered wallet access, particularly for foreign users. It was explained that KYC requirements for lower-value wallets may be lower, though a fixed mobile number is typically required. This requirement may be a constraint on foreign users, who often rely on disposable numbers.
The discussion concluded with broad agreement that a digital pound has strong potential to support payments innovation in the UK. However, its success will depend on thoughtful design, ecosystem readiness, and overcoming barriers such as public trust and the dominance of existing platforms. It was also noted that there may be other ways to achieve these goals, through existing or other new digital payments platforms and infrastructure.
Item 6: Bank presentation on the Digital Pound Lab
The Bank presented an update on the newly launched Digital Pound Lab, a significant step in its practical experimentation phase. The Lab is designed to test real-world use cases in a controlled environment and is intended to inform, but not determine, the final design of a digital pound.
It was emphasised that the Lab is not a pilot and does not involve real money or users. Instead, it serves as an experimental platform for industry participants to explore potential use cases and business models. The Lab’s objectives include:
- Co-creating and testing use cases with industry
- Assessing the viability of emerging business models
- Identifying features that support or hinder innovation
- Informing the Bank’s broader thinking on digital currency technology
The infrastructure of the Lab is based on the platform model. The Lab will operate in two phases. The first phase will last up to three months and involve up to six firms. Phase one will test predefined use cases, including:
- Point-of-sale payments
- Micro-merchant acceptance
- Omnichannel payments
- Tourist wallets
- Salary payments
- Business-to-business conditional payments
- Tiered wallets
The second phase is a broader call for participation, inviting firms to propose their own innovative use cases. Applications for this phase will open in July, and the second phase is expected to last around 9 months. Findings from the Lab will be shared through demo events, experiment reports, and public statements from participating firms.
Discussion
Members asked whether data generated in the Lab could be shared with academics. The Bank confirmed that only synthetic data would be used, but noted the potential for academic collaboration with participants in the Lab.
Clarification was sought on the distinction between third-party initiation and smart contracts, particularly given the instant nature of digital pound payments. It was explained that the Lab will include functionality to support atomic settlement between tokenised assets in a smart contract platform and digital pound payments in the core system.
The role of software development kits (SDKs) was also discussed. The Bank noted that the Lab would help assess how easily firms can innovate using the infrastructure, and feedback from participants may inform future SDK development.
One member asked whether participants in the Lab are incentivised to participate. The Bank confirmed that participants would not be paid but that the Bank is interested in understanding their business perspectives and motivations.
The potential for the Lab’s infrastructure to support broader account-to-account payments was also discussed. It was suggested that, even if a digital pound is some way off, the Lab could help inform improvements to the wider payments system. The Bank agreed that while the architecture may differ, lessons from the Lab could support broader payments innovation.
Item 7: Subgroup discussion – Uniformity & Alternatives
Subgroup headline question: Is a digital pound likely to meet the core objective of money uniformity, and is it the best option?
The subgroup first set out their working definition of uniformity, defined as a fixed 1:1 exchange rate between different forms of money. It was clarified that, in their definition, uniformity does not imply identical features across money types, but rather equal valuation at the margin.
The group noted that full uniformity requires at least one side of the market (supply or demand) to be highly elastic. This has implications for proposed design features such as holding limits, which may restrict elasticity and undermine uniformity, in extremis. In contrast, remuneration was suggested as a tool that could help maintain indifference between forms of money.
The subgroup argued that uniformity is desirable because it reduces transaction costs, supports the public good function of the unit of account, and reinforces the central bank’s role in maintaining monetary sovereignty.
They explored the trade-offs involved in pursuing uniformity. While some view it as an all-or-nothing concept, the group noted that economists typically consider marginal trade-offs and that there are some historical monetary regimes where uniformity did not hold at all times and across all forms of money. A key question raised was whether the acceptable trade-off should be determined by the market or by government policy.
The group also examined whether retail access to central bank money is necessary to support uniformity. While the academic literature is not conclusive on whether it plays an essential role in underpinning public trust e, it may play a role in reinforcing the unit of account and monetary sovereignty. The subgroup concluded that the more channels available for converting between different forms of money, the stronger the reinforcement of uniformity.
In closing, the subgroup stated that while they do not believe a digital pound is not strictly necessary to achieve uniformity, it could significantly support it. They proposed three areas for further research:
- What are the critical margins needed to safeguard a fixed exchange rate?
- Does retail access to central bank money foster trust in the monetary system?
- What are the indirect effects of a digital pound on uniformity?
Discussion
One member suggested that uniformity should be considered in both normal and stressed conditions. In times of stress, differences in the attributes of various forms of money could amplify instability, particularly for less-informed users who may struggle to distinguish between them.
The role of a digital pound in enhancing monetary and financial stability was discussed, particularly in contrast to emerging non-bank payment solutions like stablecoins. Members discussed how limits and the existence of deposit insurance may influence how a digital pound was viewed. The chair suggested members consider a state of the world where a broader range of new digital monies emerge.
Members agreed on the importance of a stable and trusted unit of account. It was argued that the long-term case for a digital pound lies in providing a simple, reliable unit of account without relying on a complex network of regulated institutions. The Bank has a role to ensure public access to a trusted benchmark to anchor the monetary system. Others noted that while a digital pound could support growth as a base settlement asset, near-term priorities should focus on solving practical issues, such as high transaction costs for small businesses.
The discussion also touched on international comparisons. It was noted that India’s UPI system has achieved significant digitisation without a CBDC, although the Reserve Bank of India was still considering the adoption of a retail CBDC as part of the UPI. The session concluded with reflections on the broader implications of uniformity. Some members questioned whether the existing system was the right benchmark. Current approaches may not be optimal, and the future may demand new solutions.
Item 8: Subgroup discussion – Public and Private
Subgroup headline question: Can a digital pound be financially viable for the public sector and private sector participants?
The subgroup presented their analysis on the financial viability of a digital pound, reframing the question beyond infrastructure costs and revenue models to focus on adoption dynamics, market competition, and incentive structures from both public and private sector perspectives.
The presentation was structured around eight key themes:
Adoption and scalability – it was emphasised that widespread adoption by both consumers and merchants is essential for a digital pound to achieve the scale necessary to justify investment. The interdependence between consumer and merchant uptake was identified as a central challenge, with demand-side behaviours playing a critical role.
Current and future payments landscape – the group highlighted the growing complexity of the payments ecosystem, driven by mobile wallets, buy-now-pay-later services, peer-to-peer platforms, and embedded payments. Large platforms create lock-in effects that pose challenges for new entrants like a digital pound.
Geopolitical and regulatory drivers – communications by policymakers on the digital euro have emphasised the importance of maintaining monetary sovereignty and reducing reliance on non-European payment providers. Initiatives like the digital euro and regulatory frameworks such as the Digital Operational Resilience Act (DORA) are shaping the future of digital payments infrastructure in the EU.
Consumer behaviour and preferences – research suggests UK consumers value real-time payments, cross-device accessibility, simplicity, and customisation. Trust and privacy remain essential. While transactional use of cash is declining, it remains very important for certain groups and continues to be held by a large portion of the population. Data-driven services, such as budgeting tools and loyalty programmes, are becoming standard expectations and should be considered in the digital pound’s design.
Merchant incentives and barriers to adoption – research suggests merchants are motivated by lower transaction fees, reduced chargebacks, and operational efficiency. However, integration costs, technical complexity, and lack of interoperability with existing systems remain significant barriers. Adoption is likely to vary by sector, with retail and hospitality showing higher potential.
Design and communication – design features such as privacy, user defined programmability, settlement speed, and budgeting tools were identified as key levers for adoption. Communication strategies, particularly short educational videos, can improve consumer understanding and willingness to adopt. Behavioural economics suggests that awareness, trust, and perceived utility often outweigh rational cost-benefit analysis.
Chicken-and-egg problem – the group addressed the two-sided market dilemma: consumers won’t adopt without merchant acceptance, and vice versa. Three potential solutions were proposed:
- Interoperability with existing payment systems
- Incentives for early adopters
- Strategic partnerships with incumbent players
Policy and strategic considerations – the subgroup suggested a digital pound should be positioned as a strategic asset for the UK’s financial infrastructure. Delays in developing a digital pound could risk entrenching private alternatives and weakening public control over digital money ecosystems. Financial viability will depend on clear purpose, robust ecosystem design, and targeted adoption strategies.
Discussion
Members discussed that merchant service charges in the UK vary significantly by merchant size. Additional fees from facilitators can often increase costs for small businesses. One member noted the potentially regressive nature of the current system, where high-income consumers often benefit more from credit card rewards which are paid for through merchant fees, and ultimately consumers. This dynamic may partly reinforce a payment structure that favours cards over lower-cost alternatives such as a digital pound.
Concerns were raised about the business model for PIPs. Without clear revenue streams, participation may be unattractive for both incumbents and new entrants. The failure of PayM in the UK was cited as a cautionary example.
The importance of a balanced value proposition across consumers, merchants, and intermediaries was emphasised. It was noted that achieving lower fees for merchants, value-added services for consumers, and commercial viability for intermediaries is essential. The challenge of the Day 1 proposition, when user numbers and features could be limited, was also highlighted.
Members discussed the timeline for the potential launch of a digital pound. It was argued that too long a timeline risks entrenching private digital money solutions and weakening the UK’s strategic position. Some members felt a digital pound should be seen as a response to global competition and a tool for monetary sovereignty, not merely a technical upgrade.
Item 9: Closing remarks
The chair thanked all presenters and participants for their contributions throughout the day, noting the ability to draw connections across the different subgroups had been especially valuable.
The chair noted the forthcoming Innovation in Money and Payments conference in September and said the group would likely meet again towards the end of the year to summarise the work.
Attendees
Nick McLaren (chair)
Members
Alexander Edmund Voorhoeve, London School of Economics
Anna Omarini, Bocconi University
Alistair Milne, Loughborough University
Andrew Theo Levin, Dartmouth College
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
Sheri Marina Markose, University of Essex
Non members
Kyeyoung Shin, Saïd Business School, University of Oxford
Sarah Breeden, Bank of England
Apologies
Pinar Ozcan, Saïd Business School, University of Oxford