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The UK should provide leadership in international digital currency technical standards-setting regardless of whether it decides to deploy a digital Pound.

Roxana Mohammadian-Molina, chief strategy officer at Blend, states that the financial technology prowess of the UK is formidable and will play a leading role in establishing technical standards for central bank digital currencies (CBDC).

As a peer-to-peer lending platform, Blend recognises the UK’s ability to define a global standard for this emerging form of digital currency, and here Mohammadian-Molina explains how the establishment of these standards could be a defining feature of the nation’s post-Brexit post-Covid industrial movement. 

Global CBDC technical standards: should the UK lead?

The future of money is digital and the race to CBDC is firmly on. According to PwC’s 2022 CBDC Global Index, over 80 per cent of central banks are considering launching a retail or wholesale CBDC or have already done so, even though they are alarmingly operating in silos.

However, CBDCs need a unified global approach given the fracturing of geopolitics into opposing silos. This is particularly true against the background of an ever more fragmented world order where the lines between politics, diplomacy, finance and technology have become increasingly blurred.

Emerging technologies such as CBDC are no longer mainly an economic and commercial issue where the first-mover advantage is critical but are increasingly geopolitical issues of the highest order. Therefore, when attempting to establish the position of global Britain in a competitive age, we must consider how emerging technologies such as CBDC impact our position’s ability to deploy soft power.

‘Leaders in soft power’

The UK is a world leader in soft power, which has historically been vital to our security and prosperity. Much of that has had to do with the UK’s ability to be at the forefront of developing global standards in industries such as technology and finance, helping reduce barriers and enhance global cooperation.

Global standards are critical to ensure international interoperability, transferability, consistency and safety across various industries because they provide rules, guidelines and characteristics for goods and services, and are therefore a reliable basis for people to share the same expectations about them.

The UK has historically understood the value of soft power that comes with setting global standards. Last year, for example, the government launched AI Standard Hub as part of the National AI Strategy, an initiative to grow UK engagement and lead in shaping technical standards for Artificial Intelligence. A similar move in the field of CBDC will help put the UK at the forefront of this rapidly developing area.

Promoting the UK as a leading CBDC hub globally

Building on our success in the financial services industry that gave London the soft power of the City and made the UK the second-largest investment management centre in the world, promoting the UK as a leading CBDC global hub will help us engage with businesses and with overseas governments to help them recognise the power of Britain as a global nation with innovation and finance at its heart.

It would also help us highlight to global stakeholders the factors that make the UK a success story in digital transformation and a trusted place to do business, including its global leadership in fintech. Our blatant lack of productivity growth since the Global Financial Crisis over a decade ago, our conscious uncoupling from our European Union neighbours, and our bitter domestic political issues over the past five years have incessantly chipped away at our soft power with self-inflicted wounds.

Therefore, there has never been a more important time to reignite Britain’s legendary soft power. By providing leadership in international digital currency technical standards setting, we have a unique chance to do that while showcasing the British spirit of innovation that the world had come to admire.

Fostering collective values such as privacy, free trade and freedom

The sanctions imposed by the Western alliance on Russia in the aftermath of the war in Ukraine have threatened to drive Russia and its allies towards joining China in a multiple CBDC cross-border payment system to escape the economic impact of the sanctions.

The sanctions certainly accelerated Russia’s appetite for private cryptocurrencies whilst simultaneously speeding up its work on a Digital Ruble targeted for launch in 2024. Against this background, by bringing together information about technical CBDC standards and development initiatives in an accessible, user-friendly, and inclusive way, the UK could support the creation of new ideas for successfully navigating the new global order.

More broadly, the UK’s leadership in international digital currency technical standards-setting could help leverage the power of emerging technologies such as CBDC, DeFi and Web3 to foster collective values such as privacy, free trade, and economic freedom, while empowering diplomacy and peace.

Enhancing international cooperation in other fields such as trade and finance

CBDCs that rely on decentralised ledgers promise to be a game-changer for international trade by increasing the efficiency of cross-border payments.

At present, the speed of settlement for cross-border payments varies from the same business day to five business days and human interaction is often required to verify the sender and receiver’s information, for example for AML and CTF purposes.

Consequently, payment speed is often determined by how much the business hours of the sending and the receiving institutions overlap, and by whether they rely on the same messaging standards. But for SBDC that rely on decentralised ledgers, money could be sent and received within seconds and around the clock. Moreover, CBDC promises to bridge the financing gap by providing alternative credit info for trade finance, helping SMEs who typically don’t have established financial records with banks.

To conclude, as the UK looks to chart its post-Brexit post-Covid path in a fundamentally changed world order, it faces an unprecedented opportunity to provide forward-thinking leadership in international digital currency technical standards-setting regardless of whether it decides to deploy a digital Pound.