How to Mitigate Disintermediation for the UK's Digital Pound CBDC Using a Stablecoin Token
We propose that the design of the digital pound uses a de facto stablecoin token as a proxy for the pound as central bank cash, for the purpose of mitigating the challenge of disintermediation.
Author: Robin Smith tohonesty.com
Mint digital pound tokens 1:1 for each pound of central bank cash
BoE can manage the stock of cash by continuously minting or burning the tokens, 1:1
Given no commercial bank money is involved, disintermediation is obviated
Given the total stock of cash is the same, stability and policy can be safely managed
Use a public blockchain core ledger for high scale transactions and analytics
Caveat: A single, public, distributed ledger technology(blockchain) is strongly recommended as the Core Ledger.
For improved scale, privacy, stability and innovation opportunity
It can be achieved with an old world database or private blockchain, but most innovation opportunity will be lost and scale difficult to achieve
Caveat: This proposal presupposes a stablecoin is used as a proxy for the digital pound.
Such a token, identically to non tokenised methods, is anchored on par with a pound sterling, so is guaranteed by the state, maintaining public confidence
How would the BoE adjust between the tokens and cash?
Changes to the total stock of cash in circulation is simply a matter of the BoE sending a new transaction to the network signing over old coin for new, or visa versa, in milliseconds. Roll back and forward is technically simple using normal accounting methods and costs close to zero pounds in micropayment fees.
How would the BoE manage the state of the network and supply of cash?
Advanced analytics, using API calls and APISec, means the BoE can securely determine the total state of cash, immediately, giving the ability to make policy decisions with more confidence and certainty than before.
The time or digital signature locking of tokensis already well understood and soak tested at scale. Meaning the BoE can mint and burn tokens at will with total confidence no one else can do the same. Its also well understood and soak tested how to use on chain turing complete script if greater levels of sophistication are required, i.e. use for contracts and multisig
Would there be enough analogue cash left once the digital pound is adopted?
Total stock of cash required could be less given the higher velocity of money of a digital pound token.
Inclusivity for those without deposit accounts has a natural wastage: given the new tech will make having an account cheaper, simpler and more available for those on lower incomes, the number of users without a deposit account might diminish over time. These users are more likely to adopt a digital pound wallet and use it like cash as before.
The seigniorage of tokens is infinitesimal compared to traditional cash so significant cost savings can be made by the BoE.
The BoE intends to maintain central bank cash for as long as it's needed so there's low ability for surveillance to succeed - users remain free to select merchants who trade in old world cash if they are not sure.
Over time as the challenges of inclusivity diminish with new technology and age, a gradual shift to digital pound tokens can happen more gracefully when tokenised.
What would the user interface look like?
Private custodial wallets could be used for storage of the digital pound tokens using simplified payment verification(SPV) for improved privacy and massive scale. This feature could be built into the widely used wallets already available, open source preferably. Self custody would mimic traditional cash for public feeling and trust in the tokens.