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Smart Money, an Application of Distributed Ledger Technologies to Central Bank issued Digital Currencies, mobilises the power of data to significantly improve decisions concerning policy making for the control of money supply for the public good, including the development of new Fintech services in the UK Digital Economy

 

Smart Money is a research project that investigates how Central Banks would introduce their own digital currencies, with a focus on using the Digital Ledger (DL) as an underlying infrastructure. Unlike current digital currencies – such as BitCoin, Ether, Dash, or Ripple – these would be issued as national ‘fiat’ currencies, for example, in the case of the UK, as a digital form of £ sterling. This is of value to central banks, but also to a variety of other institutions and end-users, because DL-based digital currencies offer opportunities for money transfers to be shared, tracked, visualised and analysed.

From a Central Bank’s perspective, there are several reasons why Central Bank issued Digital Currencies (CBiDCs) have value, ranging from more efficient implementation of monetary policy, reduced vulnerability to bank runs, better compliance with anti-money laundering and tax avoidance regulations, and overall greater financial stability. They offer the opportunity to facilitate monetary policy when interest rates are low by ‘helicopter drops’ to targeted individual citizens as an alternative, more effective and equitable monetary policy tool to quantitative easing to stimulate aggregate demand and influence the economy. However, challenges that need to be overcome include potentially destabilising disruption to the business models of current financial institutions.

There are two questions as to why central banks should make use of digital currencies, namely:

i) to examine why this might be of economic importance, and
ii) how they should be designed in order to maximise economic, social and knowledge gains, for central banks, other Government Departments, commercial banks and insurance organisations who might benefit from this new data.

Our interest in CBiDCs lies principally in this second question, working with central bankers and end-users as stakeholders to ensure that design solutions meet their needs. This need not be just a limited level of use, in which they act as a token for large-value, inter-bank wholesale settlements, but may also include a more far-reaching scale of adoption, in which they used by citizens for their ordinary, everyday payments. Since the vast majority of transactions will fall into this category, these are areas that require careful consideration and thoughtful design.

The Smart Money project will therefore explore how the financial architecture/model, information content and structure, interaction/dashboard design and data representation to end users will impact on the value, use, concerns/problems, interpretation, and application in forecasting of the financial and economic content available from the DL. Additionally, we will offer insights into the feasible design of current and novel distributed ledger infrastructures that are grounded in worked examples of use, showing their likely potential impact and relevancies, and to whom these issues should be of concern to. This research encompasses the financial computing platforms that underlie the new and emerging DL services and the socio-economic systems that seek to leverage access to this rich content.

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