Smart Money: Precision Data Management for Distributed Ledger enabled Central Bank issued Digital Currencies

Lead Research Organisation: Brunel University
Department Name: Computer Science

Abstract

This project investigates the data management, governance and social utility challenges concerned with how central banks, clearing banks and other stakeholders (Other Government Departments (OGDs), commercial financial institutions and citizens) can make effective use of Distributed Ledger (DL) enabled Central Bank issued Digital Currencies (CBiDCs). Central to this research is a governance framework which uses smart contracts to manage and police access rights to payment transaction data sets held on the DL for all certified and warranted stakeholders. Access to the content on the DL will be facilitated through a public key system, held by: individuals (allowing them to track or audit their own transactional activities); Government agencies (allowing them to explore gross levels of spending across different dimensions or categories, such as by citizen-spender segment or industry sector); and the Ministry of Justice (accessible only by smart judicial warrant for crime and security agencies or OGDs to access individual records). We will assess the feasibility of a how a fully auditable, tamper-proof, responsible smart governance system will make all stakeholders accountable for their data access and processing activities, whilst ensuring the protection of data and individual privacy. Moreover, access to rich payment transaction data will allow banks to perform economic forecasting and risk management in real-time and precision-targeting by patterns of spending. This has huge potential value in offering tools for economic stability and resilience, both at a national level, e.g. to assess aggregate exposure to bank debt, or at an institutional level (such as within a bank), e.g. to assess worrying levels of consumer debt by customer group. It could also be used to directly assess the economic impacts of government policy, for example by the Office of National Statistics in examining patterns of spending, and GCHQ in mining patterns of financial traffic for national security. Who to involve, how they would want this data made available for access, what the economic value and cost of running DL enabled CBiDC services is, and how citizens and civil society groups find it to be socially acceptable are therefore all research questions that we will investigate. This will be conducted through research activities exploring how the financial architecture and models, information content and structure, and information presentation will impact on the value, use, interpretation, and application in forecasting of the financial and economic content available from the DL. Alongside, we will offer (i) insights and recommendations into the design of current and novel digital ledger infrastructures that are grounded in worked examples of use, (ii) evaluate their likely potential impact and relevancies and identify to whom these issues should be of concern to, and (iii) work alongside central bankers and end-users as stakeholders to ensure that design solutions meet their needs.

Planned Impact

The impact from this project will benefit the interdisciplinary research community developing the concepts and capabilities that will underpin the design and use of distributed ledgers in digital currencies, and in particular, Central Bank issued Digital Currencies (CBiDCs). It may also benefit the following non-academic groups: a) Central banks , who are looking to create useful and usable digital currencies that allow them to more effectively manage the economies that they are charged with the governance of, giving them a tool to enact more precise and targeted monetary policy, and financial stability, while complying with legislation on money laundering; b) Commercial banks and other financial institutions, which will be able to use aggregated and anonymised transactional data sets under smart contracts within the governance framework to understand their customer base better (including 'Know Your Customer'/KYC banking diligence regulations), enabling data-assisted forecasting and assessments of their own exposure to risk more effectively; c) Government departments, which would have tools to explore levels of spending across different dimensions or categories, for example by citizen-spender segment or industry sector, or to assess and refine the economic effectiveness of policy or legislative impacts; d) Citizen individuals, who would have access to new digital methods of transacting, but would also allow them to track or audit their own transactional activities; e) Crime and security agencies (Police, HMRC, GCHQ, CESG, CPNI), who would have licensed access to financial activity (accessible only by judicial warrant to access individual records) that would be publicly examinable and transparent to ensure that they met legislative standards on personal privacy and related freedoms; f) Economists, who will be able to develop new economic models and approaches with precision-targeted data on national economic activity, i.e. data that is content-rich, granular and segmentable, and directly collected, that will support inductive, rather than current deductive analytical approaches. Together, these impacts will create a more trusted, resilient and stable financial system, increasing the potential value of transactional information services across the economy, helping grow the economy and benefit society as a whole.

Publications

10 25 50
 
Description 1. We have developed a Distributed Ledger enabled 'Smart Money Governance Model' which informs the development and enhancement of Central Bank oversight. The DL enables the operationalization of data governance tools by means of identity management, controlled access and data integrity. The availability of real-time enhanced transaction data from the DL potentially offers the Bank of England (BoE) new analytical capabilities to conduct flow of funds analysis with very low latency, greater coverage, granularity and accuracy. This introduces new possibilities for utilising and developing analytic tools that offer new insights for enhanced decision making and systemic risk management for the BoE.
2. Moreover, when linked to other data, payment data is rich data set which has a broad benefit for other government departments, such as the HMRC, to develop better policy making.
3. Empirical analysis of household flow of funds analysis and visual Sankey diagram displays has revealed important behavioural insights in terms of household spending and method of spending for specifying which data might be captured as enhance transactional data on the DL.
4. Noteworthy development and partnership concerns the development of a Making Tax Smart application with the HMRC. This uses the applied distributed ledgers for addressing the annual £13 billion VAT gap. This DL application was developed using the R3 Corda DL platform.
5. Have delivered a Proof-of-Concept distributed ledger network which operates on top of the existing and forthcoming UK payment system with the following capabilities:
i.) VAT split payment: Issuing an invoice, paying net amount to supplier and VAT to HMRC
ii.) Smart Warrant: Legal Authority authorising data access request to payer's data and creating a record on the ledger
iii.) Universal credit payment: Paying for goods or services out of a person's universal credit account
iv.) Data Analytics: Fast production of statistics based on payments recorded on the ledger
Exploitation Route Given the co-research approach we have taken, we are working closely with our strategic partners (BoE, ONS, HMRC, MoJ) to support enhanced governance policy development and new data analytics initiatives that requires access to new data mobilised by Smart Money. This includes BoE, ONS, HMRC and MoJ.
In terms of academic routes, new algorithms around predictive intelligent data analytics can be developed alongside asymmetric information risk management models and behavioural/social utility models for assessing economic impact of CBDCs. The Smart Money System enabled CBDC is an important infrastructure capability where the outcomes of the Smart Money project and DL application we have developed is informing the development of the Digital Great Britain Pound (dGBP), which have profound implications for monetary policy, the fractional reserve system and improving stability of a CBDC-based financial system.
Sectors Financial Services, and Management Consultancy,Government, Democracy and Justice,Security and Diplomacy

 
Description HMRC have set up 'Making Tax Smart' team as a result of the Smart Money outcomes, which is informing the development of automated VAT collection and VAT reporting. Also, our work has influenced ONS regarding reducing the latency of picking up faster indicators of economic activities and mobilising data for safe and assured intelligent data analytics.
First Year Of Impact 2020
Sector Digital/Communication/Information Technologies (including Software),Financial Services, and Management Consultancy,Government, Democracy and Justice
Impact Types Societal,Economic,Policy & public services

 
Description Chinese Moneywork: Studies of Use and Interaction Design for Digital Money 
Organisation Chinese University of Hong Kong
Country Hong Kong 
Sector Academic/University 
PI Contribution Exploring digital money in China
Collaborator Contribution data collection and analysis
Impact Not yet
Start Year 2019
 
Title Making Tax Smart DLT 
Description It is the application of an advanced DLTs that facilitates the automatic collection of VAT at the point of payment 
Type Of Technology Webtool/Application 
Year Produced 2020 
Impact The HMRC is involved with the co-design of the MTS DLT in order to address the annual £13.3Bn VAT gap. 
 
Description Seminar: 'Rich interactions with digital money: from use to design'. Computer Science, UCL, London (2020) 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Professional Practitioners
Results and Impact From cryptocurrencies to mobile banking apps, and QR codes to facial recognition-enabled payment, digital currencies and financial technologies are changing the ways that we think about and use money. The emergence of various forms of digital money and innovative digital financial services allows stores of value to be created, held, moved, measured, and exchanged in novel ways. Yet the success of these new forms of transactional media is largely dependent on the ways that users come to agree on them as useful and credible as viable forms of exchange, and on how they support the ways that their users interact around them and make sense of their ongoing transactional progress. The focus of this seminar lies in ordinary financial interactions: the kinds of consumer payments that are routinely made in everyday transactions, in shops, bars, restaurants, and hairdressing salons. Using data from fieldwork in the UK and China, the presentation will explore the rich forms of interactional work that take place around the use of money and opportunities for design in making financial transactions.
Year(s) Of Engagement Activity 2020
URL https://uclic.ucl.ac.uk/news-events-seminars/uclic-research-seminar-18th-of-october-mark-perry-brune...
 
Description Brunel University London Workshop on "Making Tax Smart: Enhancing HMRC Governance & Policy-making though Smart Money", 23 January 2019 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Policymakers/politicians
Results and Impact The workshop explored the key policy decisions and associated information requirements for making tax smart and participants provided insights for the co-design of smart contracts for securing tax flows. This resulted in a follow-up meeting at HMRC Westminster. Moreover, one commercial banks at the meeting has commenced development of an online automated VAT return service for their customers. Further follow-up meetings have been arranged with OGDs at the workshop with tangible joint design and development activities in place.
Year(s) Of Engagement Activity 2019
 
Description CBI Financial Services Innovation Forum. Panos Louvieris is CBI FSI member. Meeting held at One Canada Square, Canary Wharf London E14 5AB 
Form Of Engagement Activity A formal working group, expert panel or dialogue
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Industry/Business
Results and Impact Future of finance and regulatory framework for innovation. The CBI was interested in hearing members' views on how existing cooperation between the government and regulatory authorities could be enhanced, and how coordination across the public and private sector can be improved. Consideration by the members was given to the use AI as a case study to analyse the impact its economic benefit - how it can achieve better outcomes for consumers and financial services firms in areas such as credit applications, risk management and fraud detection.
Year(s) Of Engagement Activity 2019
URL https://www.cbi.org.uk/
 
Description Digital Great Britain Pound Initiative - Academics Group 
Form Of Engagement Activity A formal working group, expert panel or dialogue
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Industry/Business
Results and Impact Developing the research agenda around Central Bank issued Digital Currencies. Issues discussed:
1. What is the future of programmable money (or, what will "money" look like in the future)?
2. Stablecoins and CBDCs: coexistence or clash?
3. Cross-border issues for CBDC, including but not limited to payments, foreign exchange, taxation, and dollar supremacy.
Year(s) Of Engagement Activity 2021
 
Description EPSRC Distributed Ledger Technology Meeting at the National Cyber Security Centre, London. 3rd October 2018. 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Policymakers/politicians
Results and Impact Successful projects from the Applications of Distributed Ledger Technology 2016 call for feasibility projects, along with other relevant grant-holders and stakeholders, were brought together by the EPSRC to share progress and learning points around using DLT for different applications from the projects. Further contacts with other government departments were established around how smart money can assist in anti-money laundering and supporting policy development.
Year(s) Of Engagement Activity 2018
 
Description Meeting with Digital Currencies team members from Bank of England 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Professional Practitioners
Results and Impact Outcome of this meeting was further engagement with BoE concerning how payment data may be used for policy making by other government departments. Also, this led introduction to the data programme team was established to further the discussion around the topic of enhanced data within the context of the new payments system architecture.
Year(s) Of Engagement Activity 2018
 
Description Presentation by Panos Louvieris and mark Perry at UK Gov Distributed Ledger Technology Community of Interest meeting at the Treasury on 1st May 2018. Title: "The SMART MONEY project for Governance, Risk Management, and the social utility of Central Bank issued cryptocurrencies" 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Industry/Business
Results and Impact A cabinet office led UK Gov Distributed Ledger Technology Community of Interest. The DLT CoI brings together the UK Government's potential implementers of DLT and Blockchain with experts from academia and industry, to make sure potential applications have been independently informed about what is and isn't feasible. As a result of this, there was follow-up engagement with HMRC with the development of use cases for how smart money can assist in enhancing policy making using distributed ledger enabled central bank digital currency. This was the start of an ongoing discussions with HMRC concerned with the securing of tax flows and policy implications.
Year(s) Of Engagement Activity 2018
 
Description Session Chair - The Future of Distributed Ledger Technology, Wednesday 6th November, Isaac Newton Institute, Cambridge University 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Professional Practitioners
Results and Impact Chaired the second session of the workshop 'Distributed Ledger Technology - Research Areas and Applications' between 11:45 - 14:35. As chair, I introduced each speaker within the session and facilitated Q&A and discussion at the end of each talk.
Year(s) Of Engagement Activity 2019
URL https://gateway.newton.ac.uk/event/tgmw71/programme
 
Description Smart Money Project Workshop and Demonstration (24.08.2020, hosted by ONS) 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Policymakers/politicians
Results and Impact Development of the CBDC Smart Money specification for the next phase of the Smart Money project in accordance with the requirement for (i) ONS faster economic indicators and data analytics latency reduction, and linked to (ii) the HMRC/Brunel 'Making Tax Smart' initiative for automated VAT collection. .
Year(s) Of Engagement Activity 2020