Circle Responds to Bank of England’s Consultation Paper on a Digital Pound

Circle recently responded to the Bank of England’s consultation paper discussing the Bank’s objectives and proposals for a UK Central Bank Digital Currency (CBDC), or a “digital pound”. In its response, Circle noted that well-regulated, privately-issued payment stablecoins can and are fulfilling the need for digital forms of money in the 21st century. 

Like many advanced economies, including the European Union, the United Kingdom’s central bank is considering research and design proposals for a possible CBDC to bring tokenization to public money, like cash. The Bank of England is considering a retail CBDC that would directly face consumer end users, with private companies providing digital wallet systems for storage and transaction services.

Circle noted that many of the potential uses of a UK retail CBDC are currently being satisfied by digital currency innovations like USDC and EUROC, which have strong and growing integrations with traditional merchant payments, card networks, and peer-to-peer transactions. Circle urged the Bank of England to work with its counterparts in the UK government, such as HM Treasury, and with other financial regulators, such as the Financial Conduct Authority, to create a robust and comprehensive regulatory regime for payment stablecoins in the wake of the passage of the Financial Services and Markets Bill, which recognizes a standard for payment stablecoins for the first time in UK law. 

Circle requested additional clarity from the Bank about how the proposed “public-private partnership” model for digital wallet technologies would function in practice for a possible digital pound, and asked for a clearer understanding of the roles that banks and non-bank institutions would play in the storage and uses of a retail CBDC. Circle also noted that any potential digital wallet solution for a retail CBDC should also take into account other forms of money, such as commercial bank deposits, or a payment stablecoin that a consumer end-user or merchant may wish to hold and transact with.

In its consultation paper, the Bank of England has proposed initial limits for the total amount of digital pounds that a person or entity could hold in a digital wallet, and remarked that the vast majority of Britons could receive their pay packets in digital pounds sent directly to digital wallets. Circle cautioned against the idea of overall limits on the holding of digital forms of money, noting that limits could curtail such an instrument’s usefulness as a store of value and means of exchange. Circle also commented that the Bank’s proposals for how a digital pound might be used could displace the flows of traditional commercial bank deposits, which many financial institutions depend on for credit creation. 

Instead, Circle urged the Bank of England to fully consider the ways in which payment stablecoins can be better integrated as a digital token within the UK regulatory system and commercial market to facilitate innovative, low-cost, and high-efficiency consumer and merchant payments. Circle noted that payment stablecoins can enable secure and frictionless payments, without the need for significant government investment into novel financial infrastructure, and preserve the critical “air-gap” between the central bank and financial services provision and intermediation in the UK economy.

Circle’s Responds to UK HM Treasury Call for Evidence on Payment Services Regulations

In April 2023, Circle responded to His Majesty’s Treasury’s Call for Evidence regarding the UK’s Payment Services Regulations, and wrote in support of bringing payment stablecoins into the UK’s existing payments services and electronic money issuance regulatory regimes. 

As part of the UK’s departure from the European Union, HM Treasury, along with the Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR) are conducting a review of the UK’s existing financial services regulations. In its response, Circle expressed its appreciation for the UK government’s stated goals to be a hub for financial services innovation, and to create a workable framework for the regulation of digital assets in the UK.

Circle urged HM Treasury to give specific clarity on the issuance of payment stablecoins in the UK, and provide digital asset businesses that are currently or likely to be regulated in the UK with clear and proportionate regulations and licensing requirements. Circle noted that the Payment Services Regulations may need to be tailored to the specific needs of digital asset business, whose use of public distributed ledger technology may differ significantly from a traditional payment service provider. 

Additionally, Circle encouraged HM Treasury to consider the ways in which e-money issuance regulations may need to be amended and tailored to the specificities of payment stablecoin issuers. Broadly speaking, Circle is supportive of a regulatory regime in the UK that hews closely to that of traditional e-money issuance, and Circle urged HM Treasury to provide a pathway for authorized payments institutions to seek authorisation to issue e-money on the basis of their existing payment services licenses in a swifter and simpler way than is the case currently.

Circle, Stellar, MoneyGram and the UNHCR convene to advance humanitarian aid

According to the United Nations High Commissioner of Refugees (UNHCR), increasing humanitarian crises around the world have forcibly displaced 103 million people. Based on its 2023 outlook, the United Nations estimates that 339 million people worldwide are in need of humanitarian assistance. Only a year ago, it was 274 million people. Conflicts, the climate crisis and COVID are leading to growing hardship.

Recently, UNHCR joined with Circle, the Stellar Development Foundation and MoneyGram International to rapidly deliver aid to people displaced and impacted by Russia’s invasion of Ukraine utilizing Circle’s dollar digital currency, USDC.

Enabling the use of internet-ready, device-centric payment methods to distribute humanitarian aid is a momentous breakthrough that has several distinct advantages compared to legacy payments infrastructure. For instance, recipients do not require a bank account. Beneficiaries can receive funds within minutes on a smartphone via an internet-based digital wallet app. Redeeming these aid payments is also flexible with options of encashment and utilization. Displaced persons are able to hold and transport digital dollars in a digital wallet and convert to cash when it is needed and safe to do so at more than 350,000 MoneyGram locations in over 200 countries worldwide.

At WEF23 in Davos earlier this year, I was joined onstage by Denelle Dixon, CEO of Stellar, along with UNHCR Treasurer Carmen Hett. Together, we outlined the impact USDC is having in Ukraine, along with their plans to scale this critical infrastructure to recipients in other global regions.

Here are some highlights of the conversation.


On the need for standardized solutions

Hett talks about the magnitude of the current need, and reasons for pursuing a standardized program that can deliver digital dollars to global populations within minutes.


What makes Stellar an ideal infrastructure

Dixon discusses the unique approach behind Stellar’s blockchain infrastructure, and why having global on/off ramps helps create new levels of utility in aid distribution to the unbanked.


Overcoming friction while mitigating risks

Hett describes UNHCR’s diligence process for getting UNHCR comfortable with the solution, what makes it different from traditional forms of aid disbursement and potential next steps for expanding the program.


View the full conversation here.