The dithering continues as HM Treasury (HMT) and the Bank of England (BoE) will launch a consultation next year to assess the case for a UK central bank digital currency (CBDC).
The duo says that a CBDC would be a new form of digital money issued by the BoE and for use by households and businesses for their everyday payments needs. It would exist alongside cash and bank deposits, rather than replacing them.
The question of whether the UK will get a CBDC has been going on for a long time. For example, back in January 2020 the BoE was one of the central banks – along with the Bank for International Settlements (BIS) – that teamed up to assess the potential cases of a CBDC.
It seems this state of assessment just won’t end. In 2022 the HMT/BoE consultation will evaluate the main issues at hand, consider the high level design features, possible benefits and implications for users and businesses, and considerations for further work.
This consultation will form part of a ‘research and exploration’ phase and helps to inform policy development over the next few years.
Economic Secretary to the Treasury, John Glen, comments: “I’d encourage everyone to contribute to the discussion so we can explore the opportunities this could bring, as well as understanding any risks it may pose.”
According to the BoE, no decision has been made on whether to introduce a CBDC in the UK, which would be a “major national infrastructure project”. In April 2021, the bank and HMT initiated the joint CBDC Taskforce to coordinate the exploration of a potential UK CBDC. The bank also set up the Engagement and Technology forums, where relevant people from industry, civil society and academia provide input.
The 2022 consultation will inform a decision on whether the authorities are content to move into a ‘development’ phase which will span several years.
If the results of this ‘development’ phase conclude that the case for CBDC is made, and that it is operationally and technologically “robust”, then the earliest date for launch of a UK CBDC would be in the second half of the decade.
Central banks around the world have shown an interest in CBDCs. The US Fed is one name. The Monetary Authority of Singapore is another and is building the foundations – but like the BoE shows no urgency in the matter.
Also this week, the Banque de France revealed the results of its CBDC experiments conducted in 2020 and 2021.
“These experiments with a wholesale CBDC were carried out in record time, in less than a year, and show how interested market participants are in the subject, as well as their expectations regarding public authorities. With the emergence of financial assets in tokenised form, we have shown that a CBDC, combined with the potential of new technologies, can ensure the safe settlement of transactions in these assets and thereby contribute to the secure development of these innovations. We have also demonstrated that a wholesale CBDC would be of benefit for cross-border and cross-currency payments as it would improve the efficiency of processing chains,” explains Nathalie Aufauvre, Director General of Financial Stability and Operations, and head of the Banque de France’s experimentation programme.
However, the Banque de France adds that the experiments “raised some important questions that need to be examined further”.
Last month, eWeek UK analysed BIS’s latest findings regarding the seven central banks working in unison to explore CBDCs.