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

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.

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.