Microsoft, the tech giant behind the popular Windows operating system and the Azure cloud platform, has announced that it is exploring the possibility of developing a central bank digital currency (CBDC) solution.
Microsoft has partnered with the Digital Currency Institute of the People’s Bank of China, the central bank of China, to conduct research and development on CBDC technology. The collaboration aims to leverage Microsoft’s expertise in cloud computing, artificial intelligence, and blockchain to support the design and implementation of a CBDC platform that is secure, scalable, and interoperable.
The linkup with Aptos follows the May announcement that Microsoft, along with Goldman Sachs and Deloitte, would launch the Canton Network and start testing new features this summer. We noted back then that among the Canton participants is the Digital Dollar Project, the nonprofit that is centered on exploring the development and use of a U.S. CBDC.
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Also in May, the Brazilian central bank published a list of participants in its Brazilian CBDC pilot, a roster that includes Microsoft (and Visa too). According to the announcement, the pilot centers on a single use case, specifically delivery of a payment protocol between FIs.
The mention in the August announcement of “asset tokenization” and CBDCs hints at the importance of interoperability within existing financial structures and payment rails. This week has heralded another key move into digital currencies from the private sector: PayPal launched its own stablecoin, PayPal USD to, among other things, fund purchases at checkout and to be a part of the P2P landscape.
None of this is to suggest that Microsoft has similar plans in the works. But back in 2017, Minecraft, owned by Microsoft, debuted its own currency for its developer marketplace (real-world money was converted into Minecraft Coins). The premise of introducing digital currency within an ecosystem holds across pretty much whatever ecosystem might be seeking to add payments into the mix. J.P. Morgan, in another example, has introduced euro-denominated transactions enabled with JPM Coin, used by enterprises to make payments.
Microsoft stated that it is interested in CBDCs as a way to foster financial inclusion, innovation, and efficiency in the global economy. The company also said that it is committed to complying with the regulatory and legal frameworks of each jurisdiction where it operates.
The announcement comes amid the growing interest and experimentation of CBDCs by various central banks around the world. CBDCs are digital versions of fiat currencies that are issued and controlled by central authorities. They are different from cryptocurrencies, which are decentralized and operate on public blockchains.
CBDCs have the potential to offer several benefits, such as reducing transaction costs, enhancing financial access, improving monetary policy transmission, and facilitating cross-border payments. However, they also pose significant challenges, such as ensuring privacy, security, interoperability, and governance.
Microsoft’s involvement in CBDC research and development could signal its ambition to become a key player in the emerging digital currency landscape. The company has already been active in the blockchain space, offering various services and solutions based on its Azure Blockchain Service. Microsoft has also been supportive of cryptocurrencies, accepting Bitcoin as a payment option since 2014.
Bank of England Seeks Academics for Digital Pound Advisory Group
The Bank of England (BoE) has announced that it is looking for academics to join an advisory group on the design and implementation of a digital pound. The central bank said that it wants to explore the potential benefits and challenges of creating a central bank digital currency (CBDC) for the UK.
According to the BoE, the advisory group will consist of experts from various fields, such as economics, computer science, law, sociology, and ethics. The group will provide input on the technical, legal, social, and ethical aspects of developing and issuing a digital pound. The group will also help the BoE to engage with other stakeholders, such as the public, businesses, regulators, and international partners.
The BoE said that it is not yet decided whether to introduce a CBDC in the UK, but that it is committed to understanding the opportunities and risks involved. The BoE added that any CBDC would complement, not replace, cash and existing forms of electronic payment.
The BoE is not the only central bank that is exploring the possibility of launching a CBDC. Several countries, such as China, Sweden, and the Bahamas, have already started testing or implementing their own digital currencies. Other countries, such as Canada, Japan, and the European Union, are also conducting research and experiments on CBDCs.
The BoE said that it welcomes applications from academics who have relevant expertise and experience in CBDC-related topics. The deadline for applications is 31 August 2023. The advisory group is expected to start its work in October 2023 and meet quarterly for two years.