Project New Era is a private sector-led, cross-industry initiative that will assess a future digital currency ecosystem in the UK that could include stablecoins and central bank digital currency (CBDC).
Unlike other initiatives that seek to promote policy theories for digital currencies, New Era is about testing them in practice through a private sector pilot, using a live digital asset of the British pound. (“dSterling”).
The pilot, due to launch in September, will be managed by the private consortium, but aims to engage with the Bank of England, the Financial Conduct Authority and the Payments Systems Regulator to update them on progress and learnings to help them make informed decisions. decisions on implementing a CBDC in the future. However, these authorities are not directly involved in the pilot project itself.
Elements studied include risk assessment, both from a macroeconomic and technical perspective, examination of cybersecurity, resilience and ease of integration in order to generate a fully simulated environment for digital currencies and perhaps possibly be a CBDC for the UK.
The project is led by SMD Group, the technology company whose fintech platform “paywith.glass” provides the underlying infrastructure for the pilot, and already enjoys broad support across the industry. It is officially advised by Boston Consulting Group and supported by trade body The Payments Association. Other global advisors to the project include Rosa & Roubini Associates as macroeconomic advisors, Simmons & Simmons as legal advisor and Farrant Group in charge of strategic communications.
The first phase concluded with the publication of a green paper in February 2022, outlining possible pathways to CBDC adoption in the UK and the challenges along the way. The second phase is now underway, which consists of creating a consortium to carry out the pilot project which will last 18 to 24 months from September. The aim is to explore best practices in “digital financial market infrastructure”, or “dFMI”. The consortium leading the project bears the same name, the Digital FMI Consortium.
The pilot project will create technical infrastructure, validate use cases and provide empirical evidence in support of the proposed implementation.
Project New Era is very much about hands-on, hands-on approach and, according to SMD Group CEO Paul Sisnett, is one of the key differentiators from other projects in this space.
“There are a number of think tanks currently in place across the UK and that is very helpful, but we wanted to go beyond theory. Unless you actually put these ideas into practice, it It’s very difficult to know what works or, conversely, what can go wrong,” says Sisnett.
“We are creating a real environment – as close to a CBDC environment as possible without actually emitting CBDC. But it is different from a simulation of stablecoins because we will hold the assets backing the coin in a central bank reserve account or commercial bank account. So for all intents and purposes it will behave the same as a real CDBC.
Sisnett believes that by creating a blueprint for a retail CBDC, the project can give the UK the opportunity to lead the way in the retail CBDC space. He also sees the pilot as providing data access to UK regulators so they can make informed decisions, particularly regarding interoperability with legacy solutions and other existing currencies.
The main objective of the pilot project is to provide design principles and build on the lessons of the green book, according to Kunal Jhanji, BCG’s managing director and partner and adviser to the project.
“Elements such as the risk of banking disintermediation, data privacy and consumer data protection must be written into retail CBDCs and future digital currencies. We also need to establish the cybersecurity and resilience of future digital currency infrastructure,” says Jhanji.
“And the issue of money programmability needs to be addressed because that’s where future innovation will be realized.”
The recent high-profile collapses in the cryptocurrency market and specifically the collapse of the algorithmic stablecoin UST, make the type of sandbox testing undertaken by Project New Era even more important and timely.
“The collapse of the UST raises critical questions about how to implement a digital currency,” says Jhanji. “Asset safeguards, consumer protection and regulatory requirements are more important than ever. Digital currencies must be properly governed with liquidity held either by a central bank or other well-governed trusted entities.
Sisnett, with his experience in payments and telecommunications, emphasizes the importance of infrastructure.
“We were able to apply our acquired knowledge in the telecommunications sector, where the design of cloud infrastructure and data centers is essential. We approached the project to see how a CBDC can sit on this platform, but we also wanted to incorporate the flexibility to support other digital currencies or digital assets in the future.
“The idea is that we’re creating a new highway or internet for money that embeds compliance and regulation into the infrastructure layer,” says Sisnett.
Sisnett points out that when the World Wide Web was first invented and used in the early 90s, no one could have predicted apps like YouTube or TikTok.
“What we’re aiming for here is to create a foundation that can support future monetary applications; we are laying these rails for the foundation of the new currency, digital currency. We view digital money as a human right,” says Sisnett.
He points to the world where currently 1.7 billion people do not have access to formal financial services.
“If we fail to consider the unbanked populations today, they will be excluded from the future digital currency ecosystem and that would be a socio-economic disaster of epic proportions. Our goal is to ensure that every human being has access to financial services in the future.
Worldwide, 90 countries are actively studying CBDCs, there are 17 ongoing projects and three full implementations. Both Sisnett and Jhanji believe the UK has the opportunity to make a difference.
Jhanji considers the New Era project to be very different from other implementations, in part due to the UK’s engagement with the private sector.
“The Bank of England has actively engaged with the private sector, has set up a task force and is openly seeking input on what a CBDC might look like,” Jhanji says referring to discussion papers. published by the Bank of England in 2019, 2020 and again last year.
Sisnett is a spirit with Jhanji.
“From the start, the Bank of England reached out to the public for input, opinions and advice on a CBDC strategy, which was a bold and unique move. One entity is unlikely to be able to navigate the complexity of a CBDC on its own. By seeking consultation, the UK not only has access to in-depth experience, but is also acting in a very transparent manner.
“I truly believe that by taking this approach, the UK has the opportunity to present a CBDC strategy to the world that works and meets all regulatory and retail needs,” concludes Sisnett.