The 2024 Digital Finance Horizon: UK’s Digital Pound Foundation event insights and UDPN’s new partnerships

The UK’s plans for a digital pound are heading into exciting territory as we accelerate into 2024. The Digital Pound Foundation‘s anniversary event on 31st January gathered experts in London to discuss last year’s achievements and the future of digital finance in the UK, with a focus on how global and national policies might shape the UK’s advancements in digital money. GFT was thrilled to attend the event alongside strategic partner Red Date Technology and contribute our expertise as co-founders of the UDPN – a global payment messaging network underpinned by distributed ledger technology, that connects regulated stablecoins and central bank digital currencies (CBDCs) across both decentralised and centralised currency systems. 

The Digital Pound Foundation is a member-led forum supporting the introduction of a well-designed digital pound. The event provided a deep dive into the digital pound’s journey and its future. Experts at the event shared key updates on the UK’s regulatory progress and discussed what a central bank digital currency in the UK could look like. It is now clear that there is a growing case for a state-backed digital pound, to protect the integrity and sovereignty of the Bank of England.  

UDPN and Digital Pound Foundation partnership 

Whilst the event primarily focused on digital currency applications in retail financial services, there is a growing demand for similar innovation in the wholesale and institutional space. Large-scale commercial enterprises, banks and other financial institutions are demanding rapid, cost-effective and just-in-time settlement for cross-border transactions – and are exploring the blockchain use cases in pursuit of this goal. Just as central banks are exploring and even building the infrastructure for CBDCs, the private sector is developing regulated stablecoins and deposit tokens. As such, there is a pressing need for a system that ensures seamless interoperability with existing and new financial infrastructures, as well as cooperation between central banks and commercial banks. 

The Universal Digital Payments Network (UDPN), built on distributed ledger technology (DLT), seeks to bridge these gaps by providing a network to ensure interoperability between regulated digital assets such as stablecoins, CBDCs, and tokenised deposits, as well as seamless connectivity between any business IT system and regulated digital currencies.  

To help advance the landscape of future digital currencies, UDPN has joined the Digital Pound Foundation as a strategic partner. This partnership allows both entities to focus on policy and regulatory developments in different jurisdictions and explore the geopolitical and monetary implications of new forms of digital money. The collaboration will: 

  • explore the practical ways in which the DPF and its members can be involved in UDPN’s sandbox and proofs of concept, helping drive forward concrete use cases for CBDCs and stablecoins globally. 
  • help shape the landscape of emerging technologies, extending beyond consumer transactions to encompass interbank and ‘wholesale’ digital currency scenarios. 
  • advance practical contributions to UDPN’s pilot projects, enhancing the integration and application of digital currencies for both retail and large-scale financial transactions. 
  • cultivate a deeper understanding and adoption of new and innovative technologies to build the infrastructure for the future of finance. 

The Bank of England and HM Treasury’s consultation response 

Published in January, the response to the consultation launched in February 2023 was one of the key topics discussed during the DPF event. This response highlights the ongoing process of exploring a digital pound, which would: 

  • operate alongside cash, giving users more flexibility in making daily payments.  
  • be a claim on the Bank of England, hold the same value as physical money and be accessible via digital wallets on smartphones or smartcards, provided by the private sector.  
  • aim to be interchangeable with other forms of money, not intended to accrue interest or be used as a savings instrument.  
  • open possibilities for innovation in payment systems, allowing for more efficient and potentially cost-saving transactions, and innovative use cases, by allowing the establishment of rules for payments using smart contracts.  

Whilst no final decision has been made yet on whether to implement a digital pound, the Bank of England’s ongoing work reinforces the UK’s ambition to maintain a leading role in the global financial sector. 

The consultation also highlighted other emerging types of private digital money, such as: 

  • stablecoins, designed to have a consistent value tied to fiat currencies or other assets through reserve holdings. 
  • tokenised bank deposits, which are blockchain-issued tokens representing bank deposit claims. 

Prudential Regulation Authority (PRA) letter to CEOs and what this means for banks 

As the PRA dispatches its latest guidance, banks need to navigate the new regulatory waters carefully. If they choose to offer stablecoins, they are advised to do so through separate legal entities distinct from their deposit-taking operations to avoid customer confusion and ensure compliance with existing regulation.  

This separation from regulated bank-issued stablecoins and deposit tokens is crucial to support the Financial Services Compensation Scheme (FSCS) consumer protections. Banks must ensure that tokenised deposits carry the same level of protection as traditional deposits to maintain trust and stability in the financial system. This approach allows banks to innovate whilst safeguarding the principle of the ‘singleness of money’. Banks aiming to remain competitive and innovative must adhere strictly to regulatory guidelines as they develop new offerings, including tokenised deposits and non-deposit-based ‘store of value’ financial products, such as stablecoins.  

In addition to onboarding USDC and PayPal USD, the UDPN is also working on a stablecoin management system specifically for banks. This reflects the UDPN’s strong commitment to showcasing the advantages and efficiencies it can bring to the finance and payments industry. 

The ongoing discussions, consultations, regulatory updates and project developments are steadily moving us towards a financial ecosystem where CBDCs, stablecoins, and tokenised assets coexist harmoniously, not only within the UK, but on a global scale. 

To discover more about GFT, UDPN and all aspects of DLT visit www.gft.com/dlt  

 

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