Ripple Labs Inc. (Ripple) contributed to and supports the submission made by the Digital Pound Foundation (of which we are a member) in response to this inquiry. We write now to provide a short introduction of our company, including a description of our interest in this space. We also offer several principles for consideration which we think are relevant as the Committee examines the main issues confronting HM Treasury and the Bank of England in exploring the potential for introduction of a CBDC within the UK.


Introduction to Ripple


Using blockchain technology, Ripple allows financial institutions to process payments instantly, reliably, cost-effectively, and with end-to-end visibility anywhere in the world. RippleNet, our enterprise software solution which is powered by a standardized application programming interface and built on the market-leading and open standard Interledger Protocol, enables financial institutions to facilitate faster and less costly cross-border payments, demonstrating that deep interoperability between commercial financial institutions can make payments truly efficient, particularly in eliminating the uncertainty and risk historically involved in moving money across borders using interbank messaging alone.


In addition, Ripple offers these entities an On-Demand Liquidity capability which leverages XRP - the digital asset native to the XRP Ledger, a distributed ledger platform - as a bridge between fiat currencies, further reducing the friction and costs for commercial financial institutions to transact across multiple global markets. Although Ripple utilizes XRP and the XRP Ledger in its product offerings, XRP is independent of Ripple. The XRP Ledger is decentralized, open-source, and based on cryptography. Ripple leverages XRP for use in its product suite because of XRP’s suitability for cross-border payments. Key characteristics of XRP include speed, scalability, energy efficiency, and cost.


Ripple also recently announced a pilot of a private version of the XRP Ledger (the CBDC Private Ledger). The CBDC Private Ledger is based on the same blockchain technology that powers the XRP Ledger, which has supported the management of billions of dollars of value for over eight years with no significant security or operational issues. The CBDC Private Ledger can be used for both payments and issuing currencies, and by leveraging the XRP Ledger and associated RippleNet technologies, commercial financial institutions and central banks are able to make cost-effective, reliable and close to instantaneous payments, including at high volumes and for use cases such as micropayments. While the CBDC Private Ledger has been designed on the basis of an open-source solution, Ripple has adapted it for use so that central banks can run a private network, allowing complete control over the system.

Relevant Principles for Consideration


Ripple believes the following points are relevant to the question set posed by the House of Lords Economic Affairs Committee.


CBDCs offer benefits that fiat currency does not. We believe there is a place for reliance on both physical and digital currency, and use of one need not preclude the other. That said, digital forms of payment offer unique benefits that fiat currency does not. Specifically, unlike cash, a CBDC could enable micropayments or otherwise be “programmed” for specific uses to support government aims or macroeconomic policy, such as delivering targeted financial stimulus support to individuals and businesses. CBDCs used for this purpose could be time-bound, made region-specific, or linked to specific industries to stimulate consumer demand and support key industries and policy outcomes like the green economy or decarbonisation.


Ensuring privacy considerations are met must remain a top priority. Depending on how they are issued, CBDCs may require central banks to take on additional operational tasks such as “know your customer” analysis, leaving them responsible for protecting large troves of sensitive financial information. Accordingly, it is important that CBDC creation be paired with robust data and privacy protection measures to ensure that any customer information gathered be specifically tailored to the risk being addressed and safeguards are implemented to prevent unwarranted dissemination.


Maintaining user privacy (including protection of customer data) is key to ensuring continued confidence and trust in money and payments. Should the UK government be able to balance these objectives, a CBDC might well bring many unbanked or underbanked people into Britain’s financial system for the first time.

The Bank of England has previously observed that there are currently 1.2m unbanked people in the UK - equivalent to roughly 1.4% of the UK population in 2019-2020. Given the proportion of unbanked people in the UK has declined from 7.39% in 2002-2003, and this downward trend looks set to continue as card and contactless payments become more prominent, Ripple believes CBDCs - for which only a smartphone is needed to access - could provide consumers with an easy and secure way to access central bank money and financial services, assuming privacy concerns can be met.

Any legislative changes should be principles based and technology neutral. As the UK government continues to consider what safeguards might be appropriate for digital money, including CBDCs, Ripple believes any legislative changes made should be technology-agnostic insofar as the government should not explicitly or otherwise endorse any particular technology. In practical terms, this means that payment services using digital assets as a solution should not be treated differently from payment services embedding legacy architectures, and there should be parity in the treatment of all technology.


Additionally, given the dynamic nature of digital assets, prescriptive regulation risks obsolescence. Accordingly, we believe the design of any applicable regulatory treatment should be both simple and flexible. Where possible, legislative changes should build on the existing framework, particularly for digital forms of money with equivalent economic functions and risks as other asset classes.


A public-private approach is needed to ensure maximum utility of any CBDC issued. We believe that private sector solutions - such as the use of neutral bridge assets like XRP, supported by software solutions like the CBDC Private Ledger - could have an important role to play in supporting healthy liquidity markets that allow for frictionless and cost-effective value movement between new forms of digital money in real time, enabling the exchange of less liquid digital money pairs, and increasing competition by lowering entry barriers to new and smaller market participants. An open platform approach that brings together expertise and investment from different stakeholders, including private sector firms, governments and academia, provides the best opportunity to build value-adding services without friction from intermediaries.


25 October 2021