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The Bank of England has published a staff working paper examining the risks associated with the creation of central bank digital currencies, which the paper refers to as CBDCs.

Three models of a CBDC are laid out in the paper, each with a different set of sectors that have access to the CBDC.

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The narrowest model, the Financial Institutions Access model, grants restricted access to to the CBDC by banks and non-banking financial institutions. In this model, financial institutions are granted the ability to interact directly with the Bank of England to buy and sell CBDC in exchange for qualifying securities. Additionally, an eligible institution would act as a ‘narrow bank’, a bank that provides households and firms with CBDC assets, but cannot extend credit.

The broadest model, the Economy Wide Access model, allows for indirect and direct access extended to individuals and non-financial entities. Under this model, the CBDC could act as money for all participants in an economy. Banks and NBFIs are still the only ones who have the ability to buy CBDC directly from the central bank. Other legal entities who wish to purchase CBDC will need to do so via “a CBDC Exchange to buy and sell CBDC in exchange for deposits.”

CBDCs Are Closer to Becoming an Everyday Reality Than Ever, But That Still Doesn’t Mean Soon

While widespread implementation of CBDCs is not likely to happen anytime in the relatively near future, a growing number of countries around the world are exploring the option. The Bitcoin News reported that the Norwegian Norges Bank issued an investigative working paper on CBDCs just last week; Sweden’s Sveriges Riksbank has been exploring the creation of the e-krona. Even the People’s Bank of China has looked into minting a digital currency of its own.

The working paper was not the Bank of England’s first foray into blockchain. In mid-april, BoE published a proof-of-concept outlining a digital distributed ledger network that “[explored] some of the key questions that could arise from ensuring privacy on a distributed ledger system.”boc

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